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Marginalized populations and employment during expansions

Marginalized populations and employment during expansions

Dean Baker ran a graph over the weekend showing an apparent conundrum: namely, that in the last several years there has been an increase in the percentage of those employed who only have a high school diploma vs. a slight *decrease* in employment among those with a college degree.  Here’s his graph:


This caught my attention, because I actually don’t think this is such an anomaly.  So I went back and checked.

The data posted by Prof. Baker has only been published since 1992, so we don’t have a long track record.  But it is interesting to note that a similar pattern asserted itself in the 1990s.  Take a look:

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Real aggregate wage growth finally overtakes Reagan expansion

Real aggregate wage growth finally overtakes Reagan expansion

In my opinion the best measure of how average Americans’ situations have improved during an economic expansion is real aggregate wage growth.  This is calculated as follows:

  • average wages per hour for nonsupervisory workers
  • times aggregate hours worked in the economy
  • deflated by the consumer price index

This tells us how much more money average Americans are taking home compared with the worst point in the last recession.
Let me give you a few examples why I believe that this is the best measure of labor market progress:

First, compare an economy that creates 1 million 40 hour a week jobs at $10/hour, with an economy that creates 2 million jobs at 10 hours a week at $10/hour.  If we were to count by job creation, the second economy would be better.  But that’s clearly  not the case.  The second economy is paying out only half of the cold hard cash to workers as the first.

Next, let’s compare two economies that both create 1 million 40 hour a week jobs, but one pays $10/hour and the other pays $12/hour.  Clearly the second economy is better.  It is paying workers 20% more than the first.

Finally, let’s compare two economies that create 1 million 40 hour a week jobs at $10/hour.  In the first economy, there are 3% annual raises, but inflation is rising 4%.  In the second, there are 2% annual raises, but inflation is rising 1%.  Again, even though the second economy is giving less raises, it is the better one — those workers are seeing their lot improve in real, inflation-adjusted terms, whereas the workers in the first economy are actually losing ground.

In each case, the economy creating more jobs, or more hourly employment, is inferior to the economy  that pays more in real wages to its workers,  In other words, the best measure of a labor market recovery is that economy which doles out the biggest increase in real aggregate wages.
In short, people work for the cold hard cash that is put in their pockets, and real aggregate wage growth measures how much more of that they’ve received.

With that introduction, here is an updated graph of real aggregate wages for the entire past 53 years:


So how does the current expansion compare with past ones?  Here is a chart I created several years ago showing the real aggregate wage growth in every prior economic expansion beginning with 1964:

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A thought for Sunday: the Left is winning the battle of ideas. The right’s own man says so

by New Deal democrat

A thought for Sunday: the Left is winning the battle of ideas. The right’s own man says so
Prof. Arnold Kling, a conservative neoclassical economist who has taught at George Mason University and been affiliated with the Cato Institute, has a post up this morning in which he  reflects upon whether he has changed his mind about anything in view of developments over the last sum of years. His reply is a notable bellwether:

I think that in general I have become more pessimistic about American political culture ….

…. What has [ ] transpired …… from college campuses [is a] view that capitalism is better than socialism, which I think belongs in the mainstream, seems to be on the fringe. Meanwhile, the intense, deranged focus on race and gender, which I think belongs on the fringe, seems to be mainstream…..

…. The Overton Window on health policy has moved to where health insurance is a government responsibility. The Overton Window on deficit spending and unfunded liabilities has moved to where there is no political price to be paid for running up either current debts or future obligations. The Overton Window on financial policy has moved to where nobody minds that the Fed and other agencies are allocating credit, primarily toward government bonds and housing finance. The Overton Window on the Administrative State has moved to where it is easier to mount a Constitutional challenge against an order to remove regulations than against regulatory agency over-reach.

I would call that a good start.

That being said, as usual I expect progress will be made one funeral at a time, as the deep, deep red Silent Generation (and primary Fox News demographic) passes this mortal coil.

__________

A postscript. Kling concludes by writing:

Outside of the realm of politics, things are not nearly so bleak. Many American businesses and industries are better than ever, and they keep improving. Scientists and engineers come up with promising ideas.

I wonder if it occurs to him that these sentences completely undercut his ideology.  After all, if evil government regulation kills innovation, well, obviously, despite the shifts in the Overton Window to the left, that obviously isn’t happening, is it?

Furthermore, if that innovation has been happening during the period of time that the Brookings Institution found, via comprehensive Social Security wage data, that workers from 1983 on made only 1% more in real terms over their entire 30 year prime age careers than the workers who entered their prime earnings age in 1957, then that innovation has not translated into *any* significant increase in the well-being of average Americans over virtually their entire working lifetimes. That is a thoroughgoing and decisive failure, well worth being replaced.

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Strong growth in labor force participation is correlated with weak real wage growth

by New Deal democrat

Strong growth in labor force participation is correlated with weak realwage growth

Prof. Jared Bernstein has a piece in the Washington Post today (and at his blog) noting that, even with much improved unemployment and underemployment rates, wage growth is still subpar.

One item I wanted to add to the conversation is the inverse correlation between the prime age labor force participation rate and wage growth.  As I I’ve pointed out several times in the last few months, most recently on Friday, more than 1% of the prime working age population has left the sidelines and entered the workforce since the beginning of 2016. This surge of participation has only been equalled twice in the last 30 years — in 1989 and 1995, as shown in the graph below:


In terms of supply and demand, this surge in participation means a big increase in the supply of potential workers. If the demand for labor has not changed materially, then we ought to expect lower wages to be paid to the new workers hired than would otherwise be the case.

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Scenes from the employment report

by New Deal democrat

Scenes from the employment report

As I described in my detailed post on the April jobs report, below, almost everything moved in the right direction, and significantly so.  Let me lay out a few graphs to show the longer-term stronger and weaker points.

In the good news department, the U6 underemployment rate has been falling at a good clip in the last few months, and at 8.6%, is about 0.6% from representing a reasonably “full” employment situation:


Part of the U6 calculation is those employed part time for economic reasons.  This isn’t down to normal yet, but continues to make good progress:

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