Should the Beveridge curve scare the Dickens out of us ?
Brad DeLong and Paul Krugman consider the increase in the number of job vacancies to be bad news — to be a sign that long term unemployment has made it hard to increase employment even if there are vacant jobs. The high vacancies are held to be a sign of a problem which is more persistent and less absurdly easy to deal with than low aggregate demand.
I comment after the jump
One might imagine that high unemployment and high vacancy rates are, as you directly state, a bad sign as high unemployment combined with high vacancies lasts longer — that the combination is a sign of hysteresis from a) deteriorated jobs skills, or b)deteriorated work habits, or c) irrational stigma due to employers assuming a or be or d) missmatch.
I recall such a graph. It was the terrifying UK Beveridge curve from 1988-9 (look it up). The word (from among others Layard) was that unemployment had become almost impossible to fight as the long term unemployed were discouraged. Then employment took off.
The Beveridge curve is the lower envelope of a slightly more complicated dynamic with counterclockwise cycles above the curve. That’s a fancy way to say it takes a while after a labor demand trough to get the unemployed into the vacant jobs. You see a smaller shift in the matching function (hires as function of vacancies and unemployed). In the UK very late 80s you saw a shift in the matching function too.
That was just before the UK ceased to be an example of the European unemployment problem and became an example of well functioning labor markets in English speaking countries.
My reading is that when the market crashed in 87, Thatcher panicked and allowed the (not independent) bank of England to stimulate. So the economy took off. It took a while to into work down the huge stock of unemployed, but there was no sign of a bad tradeoff. Just further proof that her insane policies (until she miss-interpreted the crash of 87 as the crash of 29) were the problem.
Krugman shares your view and he does tend to be right, but still, I’m tempted to make a prediction.
Then employment took off.
Mainly because we employed millions of people to build this thing called the internet; I don’t see anything like that going on right now.
Even worse, Republicans seem to think that building things doesn’t create jobs.
YUP!!! It’s all the republicans fault, or in Roberts world the conservatives. No doubt about it since I read it everywhere.
Surely not Confederate Yankee?!!
It’s all the republicans fault
Republican stock-in-trade is the simplistic world view: low corporate taxes/regulations and high corporate profits are the only things that matter in the economy.
Rising consumer debt? That’s just an artifact of people’s unbounded optimism for the future!
Housing bubble? It’s just a result of the policies of the Ownership Society! It’s a Good Thing!
U6 at 16%? Creative destruction, baby! You’ll move from flipping burgers to chief neurosurgeon in no time!
Larry Kudlow 2006:
Conventional demand-side economists keep talking about an economic slowdown. (See today’s WSJ front-page story).
These folks are stubborn if nothing else. They ignore the huge success of supply side tax cuts that lowered the marginal tax rate on capital to the lowest level in history.
Private business investment continues its surge. It remains an explosive engine of growth creating jobs, incomes and consumer spending.
The thought here is very simple: Low tax rates on capital benefit both businesses and consumers. In fact, a combination of record low taxes and record high profits is the key to understanding our current economic boom, which is the greatest story never told.
Never there!!!! Y’ano, I ran across his blog from here. He got into a shouting match with ole PGL in the day.
Here’s what Republicans accomplished in the aughts:
When there is high unemployment for employers it’s a buyers market. Employers will be slower to hire because they both can wait to hire, due to the slow economy, and can sift through many applicants to find just the right one knowing they wont be hired elsewhere soon. For applicants this means having to accept wages which are lower than they expect or positions for which they are not entirely satisfied. Both of these dynamics could work to reduce the rate at which vacancies are filled.
Democratics play no role what-so-ever eh?
What is exactly is the point your trying to make…I can’t decifer anything you have wrote here.
I got the Snark…but what is it your saying here is the solution?
“You want fires with that burger?”
“Republican stock-in-trade is the simplistic world view.”
Oh…I get it….Only the Democratic supporting world view is complex…therefore since it is complex it is superior?
“Rising consumer debt?”
Exactly what piece of Republican legislation mandated high consumer debt?
The Housing Bubble was not legislated by Republicans…that legislation process has been the Democrats baby since the 1970’s. Republicans and Bush tried to warn of the problems Freddie and Fannie were causing and they were told by Democrats…1.) There is no Problem 2.) Trying to confront Freddie and Fannie is a conspiracy to screw the little guy…so which is it?
It is true that Bush bought into trying to extend Carter and Clintons theme of more lower end home ownership, but Bush didn’t cause the Bubble, it was already well expanded when he took office.
I posted a while ago regarding the number of weeks unemployed factored with the number of unemployed. The peak time from the declared end of a recession has been getting longer and longer. I don’t have that post on the computer I’m at, but I believe the last recession the number of unemployed times the average weeks unemployed did not peak until 28 months.
If the current recession did end last year, then we have a very long way to go before we see a turn around.
Typical customer interaction for your graduate of liberal arts these days (or from Law School).
How long does it take to pay back a $100,000 college loan for studying 16th century basket-weaving working at Burger King?
Islam will change
There was this article in the NYT regarding rising profit as sales fall by cutting jobs: http://www.nytimes.com/2010/07/26/business/economy/26earnings.html?_r=1
This seeming contradiction — falling sales and rising profits — is one reason the mood on Wall Street is so much more buoyant than in households, where pessimism runs deep and joblessness shows few signs of easing.
Many companies are focusing on cost-cutting to keep profits growing, but the benefits are mostly going to shareholders instead of the broader economy, as management conserves cash rather than bolstering hiring and production. Harley, for example, has announced plans to cut 1,400 to 1,600 more jobs by the end of next year. That is on top of 2,000 job cuts last year — more than a fifth of its work force.
89, and this is whare we satand after 1 1/2 years of Obama housing policy: http://www.bloomberg.com/news/2010-07-27/vacancies-climb-as-u-s-home-ownership-falls-to-lowest-level-in-a-decade.html
Home Vacancies Rise as U.S. Ownership Falls to Lowest in Decade
unemployment for Reagan’s first budget:
unemployment for Obama’s first budget:
spx for Reagan’s first 18 mos in office:
spx for Obama’s first 18 mos in office:
So Reagan’s policies obviously sucked, right?
I really don’t think the housing bubble was concentrated at the low end.
Contra eight-etc’s point, it is not the simplistic nature of Republicanism that is the problem. It’s that they are simply wrong about everything. High unemployment? Tough Shit! (Bunning) Those weapons of mass destruction have to be here somewhere! (Bush) Bush tax cuts didn’t cause deficits because they made the economy so “vibrant.” (McConnell) A decade of “Keynesianism” caused our financial problems (Ron Paul, Dec 2009.) Deficits don’t matter. (Cheney) Tax cuts cure everything! (All repugs, all the thine.)
Plus all of Mike and Mike’s presimetrics data.
Are you starting to pick up a pattern?
No – I didn’t think so.
Not sure what you trying to get at, but most of us here don’t fall for this kindergarden stuff. You might want to try the Huff Post or Daily Kos, they’ll eat this up and pat you on the back. If this is your idea of evidence that Democratics and Obama are fixing anything or paving a path of growth…..Try harder!
You will quickly come to realize that irony is wasted.
The point is that we are within a gnat’s eyelash of experiencing the next great depression, and, just as in 1929, it is Republican policies of “give all to the rich” and “screw the worker” (or former worker to be a bit more precise) have caused the economic melt down – which is basically a lack of demand caused by lack of disposable income. U6 is around 16%.
You see, Capitalism needs consumption. The old ideas from 250 years ago that “supply creates demand” and “involuntary unemployment can’t happen” spent the last 80 years in the dust bin, but have now been resurrected by right wingers who feel they are discovering brilliant new truths about the universe.
It’s not so much that they ignore or disagree with Keynes – it’s more like they are totally unaware that he ever lived.
You will quickly come to realize that they are imune to facts and data.
Welcome to the monkey house.
Irrelevant subject changing.
Not good enough.
“I really don’t think the housing bubble was concentrated at the low end”
So it was the developers building all the excess housing that defaulted and that accounts for the all the bad loans?….Yeah…I Got it!
or maybe it was all the wealthy people who figured they didn’t want to pay off their second homes and just sacrificed thier assets and collateral because they go to same country club as the banker…you know……the vast right wing conspiracy to crash the economy just to screw a Black Democratic President?….Yeah….I Got It!
I live in the real world…..so no…I don’t see a pattern.
“Republican policies of “give all to the rich” and “screw the worker”
Poeple like you need to make a decision…either you believe in the Keyensian Model and Don’t care about your’s or your neighbors economic freedom, which means that your standard of living can only go one driection over time and that is down, or you believe in freedom and indivdualism in general, and that a civilization should progress by bringing up the bottom end instead of dragging down the top end.
You can’t have it both ways!
You only care about one thing and that is Class Warfare.
You will quickly come to realize that irony is wasted.
Yeah, I kinda noticed that.
One comment on the CRA: poor people don’t buy glass office towers, so it’s impossible for the CRA to produce a commercial RE bubble.
And yet we had one.
“And yet we had one.”
No…We have one, not we had one! The Commercial Real Estate Bubble wasn’t the driving force behind the Meltdown, nor have we seen the full burst of a Commercial Real Estate Bubble yet, it was created after the fact because the economy tanked, no lending to small buinsess’ and no confidence in the leadership.
Your arrogance boggles the mind.
As pointed out in the end of Wall Street perhaps one reason companies are keeping more cash is to avoid getting caught in another credit crunch as happened in Sept-Nov 2008 when commerical paper shut down. If you have enough cash you can if need be ride thru a credit crunch with your own cash rather than the modern financial model of using credit, assuming it wil always be avaialble. Corporate treasurers may have taken the lesson of 2008 to mean that they should use less short term borrowed money and instead self finance the short term needs out of cash.
Yeah, who was that Keynes guy anyway?
Well, Timmy is very pleased as the Banks are doing great and it will only be another 18 months or so before emplyment picks up…
The basic analysis is correct (well, I would say that, Layard was one of my professors) but the solution to it I think you’ve missed. Layard insisted that there have to be supply side reforms. Train the unemployed, insist that they really look for work or get their (time unlimited) benefits cut. Carrots and sticks. Which is indeed what Thatcher (and all govts since) have done.
Layard is also the guy who points to, historically, European and US short term unemployment rates as being roughly the same. The big difference in long term unemployment rates is that European out of work benefits are time unlimited while US ones are 26 weeks limited.
Thus his analysis can also be used to explain the huge rise in US long term unemployment rates: the extention of out of work benefits from 26 weeks to 99.
No, I’m not saying that unemployment should not be extended…..only that everyone needs to understand that that comes with a cost. One that might be worth paying, but at least we should acknowledge the trade offs involved.
You can find a graph of the UK Beveridge curve from 1960 to 1999 here: http://cep.lse.ac.uk/pubs/download/dp0502.pdf
Go to page 46 of the pdf and you’ll find the UK at the bottom, whith each years point labeled. I think the scary curve Robert rememers was actually for the years 1984 to 1986, and the 1987-1989 period was when employment took off in part because of a significant loosening of monetary policy and subsequent consumer debt and asset price-fed boom. But Robert is anyway correct to say that following the rightward movement in the early 1980’s, the curve went verticle for a few years (much like what we’ve seen over the past year in the US), and then circled back to the left (implying falling unemployment, since the UE rate is the x axis). Sad to say this is by far the most optimistic data I’ve seen on the economy in some months.
Jimi: “Exactly what piece of Republican legislation mandated high consumer debt?”
Well, OC, “mandated” is not the right word. 😉 However, subsidies and tax cuts for the rich are implicated in high debt levels for the rest of us.
Tax revenues incresed over the Bush Tax Cut period from 2002 to 2008 to almost the same levels as they were as a percent of Real GDP under Clinton?
Can you say Class Warfare?