The Comic Stylings of FRED, Employment Edition
I’m back to playing with data, so there will probably be more posts coming soon. (Sorry.)
Meanwhile, this one was irresistible. FRED® has a “Natural Rate of Unemployment” data series. Apparently, the evil of the United States is that—except for the second half of the Clinton Administration where it was worth people’s while—Americans Just Don’t Work Enough,
Same graphic, excluding last month and with the monthly employment data averaged to match the Quarterly NAIRU.
Figure 1
There came a time when, after paying for gas/transportation, etc., it wasn’t worth it? I think what Mitch and Trump are trying to do with unemployment amounts to indentured servitude or a version of share-cropping which was an adaptation of slavery.
This graph shows u6 for ~the same period. Can anyone spot the Trump Bump?
https://www.macrotrends.net/1377/u6-unemployment-rate
Considering household employment survey gets a 200000+ number due to retirements compared to 1999.
According to FRED: “The natural rate of unemployment (NAIRU) is the rate of unemployment arising from all sources except fluctuations in aggregate demand.” That seems to mean that NAIRU is above the unemployment rate when aggregate demand is high. i.e. The unemployment rate would be much higher except that people are buying stuff. When NAIRU is below the unemployment rate, then people just aren’t shopping enough.
NAIRU is a total intellectual creation and not necessarily right. They had it at 4.9% in 2007 yet it only had fallen to 4.5% by 2019………simply not likely. The Boomer withdrawal via retirement had boosted retirements from 100000+ to 300000+ by 2019. That simply is gonna drop NAIRU by a lot. As I said in the post above, that is like 200000 gift wrapped monthly numbers to the household survey without actually growing GDP a lick. Boomers must be replaced, replacement hiring takes place. While LFPR drops because the workforce contracts, lowering both the U-series and NAIRU.
I had issues with the 70’s and 80’s on the opposite side, where they had the numbers too high there as well, when they were likely lower for the opposite reason. Inflation was structurally higher than and the higher taxes meant much less financial liquidity I don’t think NAIRU does well under demographic change. If I had to guess the 2010’s NAIRU, it probably was 3.7-8%.
How about the inflation number with maximum unemployment, where unemployment goes so low it triggers inflation?? My guess during the 90’s expansion it was 4%. This cycle. Probably about 2.5%. Notice we were far away from that and outside a very small window in late 99/00, thats been it. Compare that to the post-war era which had many periods of blowing through that inflation window, with mid-65 onward taking the cake. The surge in inflation in the pre-H2N2 1957 recession was a case of just reaching the window.
https://en.wikipedia.org/wiki/Natural_rate_of_unemployment
Criticisms
The major criticism of a “natural rate” is that there is no credible evidence for it, as Milton Friedman himself said we “cannot know what the “natural” rate is”.[15] The natural rate hypothesis makes the fundamental assumption that there exists a unique equilibrium level of unemployment. Importantly, Milton Friedman himself never wrote down an explicit model of the natural rate (in his Nobel Lecture, he just uses the simple labor supply and demand model). Others have argued that there might be multiple equilibria: for example due to search externalities as in the Diamond coconut model or that there might exist a “natural range” of unemployment levels rather than a unique equilibrium.[16][17][18]
According to Roger Farmer of UCLA, the assumption that, after a shock, the unemployment rate returns to its so called “natural rate’ does not hold in the data.[