Relevant and even prescient commentary on news, politics and the economy.

Jobs as the Measure of Economic Success, and Rick Perry’s Texas

by Linda Beale

Jobs as the Measure of Economic Success, and Rick Perry’s Texas

We have had a warped sense of how to measure economic success in this country at least since George W. Bush started talking about the “ownership” society.  Of course, we should have guessed that moniker was problematic from the start, since it was ‘invented’ by a guy who bragged about representing the ‘have-mores’ while the economy was rapidly becoming a bi-polar, class-based society of have-mores and have-nots.

Most of the media looks at the gyrations of the Dow Jones Industrial, the S&P 500 and similar indexes of stock pricess and then says our economy is good (if they’re up) or bad (if they’re down).

Folks, that’s only true for those who own most of the financial assets–the rich folks at the top of the scale.  It’s not true for the companies. As Ali Velshi noted in the Daily Show clip on the earlier blog post, companies intrinsic values don’t change by dropping 5% overnight, gaining 3% overnight and then dropping 4% overnight.  The companies are still plodding along doing what they’re doing.  What changes is the attitudes of those secondary investors–more and more of them just quick traders out to arbitrage a temporary price difference who don’t give a damn about the company’s fundamentals.

Now, if you happen to own a few shares of a company that tanks, you clearly care about that stock price plunge.  And if your retirement account is large and heavily invested in stocks, then you care as well.  But fact is, the way we really should measure the economy is by how much and what kind of work it offers to ordinary Americans.  What’s the jobs count?  And what do those jobs pay?

And those numbers are important only relative to other numbers.  You don’t know whether you have a mice or an elephant in terms of job creation unless you know how much your population has grown alongside the growth of those jobs.  This is why the same record on job creation can be made to look good to the naive hearer  (“more than 5 million jobs in 8 years”) or terrible (“only 3 jobs per 1000 new citizens in 8 years”), depending on whether the hearer gets information on the number of new job seekers as well as the number of new jobs available for those seekers.

So Rick Perry brags about his Texas record.  I’ve already posted on the many problems in Texas, some of which Perry is responsible for and most of which he is responsible for not addressing.

What about jobs?  Yes, there is still an oil and gas ‘one-note’ economy that creates directly and indirectly new jobs as the oil and gas industry grows (for now).  Many of those jobs are minimum wage and lots of them are not very secure.   But our question is what about the new jobs to new job seekers ratio–are jobs growing, so that unemployment is going down?  or are jobs growing but not at the same rate that the population is growing?    The fact that the unemployment rate has increased to just below the national average at 8.2% suggests that jobs aren’t growing as fast as the population and maybe that jobs are even shrinking.

Here’s someone else’s take on this question.  The staff at ThinkProgress and the Center for American Progress Action Fund produced a report that delved a little deeper into the Texas jobs numbers and concluded: Texas Ranks Dead Last in Total Job Creation, [when] Accounting for Labor Force Growth, Aug. 17, 2011.

Here are a few facts from the report:

1) Between 2008 and 2010, jobs actually grew at a faster pace in Massachusetts than in Texas.

2) “Texas has done worse than the rest of the country since the peak of national unemployment in October 2009.”

3) The unemployment rate in Texas has been steadily increasing throughout the recession.

4) While over 126,000 net jobs were created in Texas over the last two and a half years, the labor force expanded by over 437,000, meaning that overall Texas has added unemployed workers at a rate much faster than it has created jobs.

5) if there is a real “miracle” here, it is North Dakota, which has seen over 27,000 new jobs and a labor force expansion of only 3,700, resulting in about 24,000 new jobs for workers who previously had none.

The resulting picture comparing Texas to other states in terms of job creation considering labor force increase or decline is the following (note that Michigan’s ‘top’ rating is due to some job creation but primarily to loss of labor force as people without jobs leave the state;  neither Michigan nor Texas has the ‘right stuff’)

Texas_labor2

Also posted at Ataxingmatter

Tags: , , , Comments (9) | |

US labor market: wage and salary growth vs. payroll growth

I’ll make this quick, since I’m going to get in trouble for writing on a national holiday. But the pace of annual jobs growth is too slow to generate strong wage and salary income. Much empirical research has been dedicated to the estimation of consumption functions, generally finding that labor income is the primary driver of consumption (here’s a primer at the Federal Reserve Board). However, by extension jobs growth is highly correlated with wage and salary growth, roughly 50% of personal income – this is the relationship I analyze here.

Roughly half of the BEA’s measure of personal income comes in the form of wage and salary, so called labor income and simply referred to as ‘wages’ from here on out. This is highly correlated with nonfarm payroll growth, both in nominal and real terms (92% and 79%, respectively, since 1996). The chart below illustrates the correlation between real wage growth and nonfarm payroll since 1982 (I use real wage so as to account for the effects of inflation).


The annual pace of real wage gains and jobs growth have declined over time (jobs growth is measured using the nonfarm payroll). Simply eyeballing the data, there’s a structural shift roughly around 1996, as listed in the table below.

Using these two time periods, 1982-1995 and 1996-05/2011, I estimate a simple model of real wage growth on nonfarm payroll growth. The chart for the 1996-2011 model is illustrated below; and for reference, the regression results across both time periods are copied at the end of this post.

READ MORE AFTER THE JUMP!

Note: I do not have time for a full blown econometric analysis. I did, however, perform statistical tests for serial correlation in the errors, unit roots in the transformed data (none), and general modeling tests.

I come to two general conclusions regarding the relationship between real wage growth and jobs growth over time:

(1) Real wage growth has become more persistent over time. In the first period, 1982-1995, just one lag was required to expunge the errors of autocorrelation. Spanning the second period, 1996-2011, three lags were required. The sum of the coefficients on the three lags is 0.87 in the later sample, or current wage growth is highly dependent on previous periods – sticky if you will.

(2) Nonfarm payroll growth has become less significant over time. Spanning the years 1982-1995, the coefficient on annual payroll growth was 0.27 – for each 1pps increase in the annual payroll growth, the trajectory of annual real wage growth increased by 0.27pps. The coefficient dropped to 0.17 in the sample spanning 1996-2011. This is probably a consequence of service sector jobs growing as a share of the labor market. I’d like your ideas in comments as well.

Clearly this is a very simple model but it does highlight that wages are likely stuck in the mud for some time. In May, annual real wages fell 0.6% over the year, having decelerated for 5 of the 7 months since November 2010. Real wages can pick up, but it takes time AND jobs growth faster than the 0.67% annual pace in May 2011.

Ultimately, what this analysis tells me is with wealth effects slowing markedly – the trajectory of the S&P decelerated and house prices continue to fall – it’s going to take a burst of payroll growth to get real wage and salary growth back on track enough to finance US domestic consumption. One caveat to all of this negativity is that oil prices are coming off – this will boost real wage and salary growth directly.

Rebecca Wilder
P.S. I guess this turned out somewhat less ‘quick’ than I had anticipated – not in trouble yet! Gotta go.

Results:

Tags: , , , , Comments (15) | |

Tax cuts paid for? With job creation? Can’t get there from here.

by: Daniel Becker

This is a simple little exercise that frankly I wonder why no one with a pulpit (that would be you congress critters, executive office and MSM) has done it. It is for those who think simplistically. Thinking like:  wealthy people create jobs with their extra money and not the non-wealthy people’s demand for stuff that makes them feel wealthy.

Let’s say that tax cuts create jobs.  770,000 jobs  for what is it, $4 trillion over 10 years? The obvious question is: How many jobs do we really need for that money to break even? Come on conservatives, you’re suppose to be the “efficient minded” thinkers. How many jobs would it take to pay it back?

Median household income for 2009 is $49,777. 5% less than the peak of 1999 by the way. Full time working men it was $47,127, women $36,278. Per capita income was $26,530. These numbers are from here

Using the household income number just because, in 10 years, you would need 80,358,389 jobs created to equal the tax cut.. Eighty plus million jobs. Of course, that we created these jobs does not mean all that money is paying for the $4trillion in lost tax collections. Only a percentage of the income is collected by We the People as income tax. Based on the Tax Foundations data that figures out to an average of 12.68% of taxable income paid as income taxes. Thus, $6,311.72 is paid for income tax for the median household income.

Stay with me here, this is simple. $4 trillion divided by $6311.72 is: 633,741,674 jobs in ten years. About double our total population in 10 years needs to be working.

Our policies have to start producing 63,374,674 jobs as soon as the tax cuts are passed, at the beginning of each year (’cause we need to collect the full $6311.72 at the end of each year) to pay for the tax cut. That is over the year, we need the equivalent of 63,374,674 jobs each having generated $49,777 of taxable income to make the mark for paying off the tax cut for that year. Not every job will pay that much for the year, so we actually need more than 63,374,674 jobs. That is, unless magically at one tick past midnight New Years Eve suddenly we have those jobs paying at that rate.

Sixty three million jobs per year. Really? Come on, you think this is possible? This nation is gonna need a lot more copulation and immigration happening over the next ten years for that to happen.

Let’s say it is possible, just not here. China?

Not even in China can do it, as they only managed 22 million jobs in 2 years . Though they did manage to provide 112 million more willing workers over the last 10 years. Problem is, even at 22 million jobs, those sure are not at a median income of $49,777/year.

So.  Really… tax cuts? LOL. Pay for them with job creation? Oh please, you’re kill me!

Tags: , Comments (43) | |

Dealing with the Sunset of the Bush Tax Cuts (Part IV in a series)–the Tax Relief Coalition

by Linda Beale
crossposted with Ataxingmatter

Dealing with the Sunset of the Bush Tax Cuts (Part IV in a series)–the Tax Relief Coalition

The Tax Relief Coalition–another of the myriad anti-tax groups comprised of Grover Norquist’s group and those of similar ideology–is at it again with a letter to Congress (available on BNA) urging the passage of new legislation to pass tax cuts to extend the temporary cuts enacted under the Bush administration. The group is spending millions lobby for its interests with the dubious claim that discontinuing tax cuts for the wealthiest Americans will hit small businesses the hardest. See, e.g., Jensen & Salant, Leader on Bush Tax Cuts Wins Allies to Keep Provisions in Place, Bloomberg.com (Aug. 20, 2010) (noting that the coalition groups have spent $3.8 million since Jan. 1, 2009 on candidates and advertising, and that the Chamber of Commerce plans to spend $75 million influencing elections in its favor).

Note that the coalition–formed of “trade associations, advocacy groups, and corporations”–calls itself favoring “pro-growth tax policies”. But what it means is favoring tax cuts. It is arguable that tax cuts support economic growth–at best they are a second-rate stimulus compared to direct government spending on public and human infrastructure that provides long-term support for economic stability– such as public transportation, public communication networks, development of alternative energy sources, education (K1-university), and basic research.

These claims that the tax cuts help small businesses are at best dubious. (See, e.g., yesterday’s post outlining various reasons why the capital gains preference has very little to do with stimulating entreprenuership or helping small businesses.) The coalition tries to cast the Bush tax cuts in terms of job creation. But the fact is, the Bush regime had a lousy record for job creation, and the tax cuts that were especially favorable to corporations probably did almost nothing to contribute to job creation. The “American Job Creation Act of 2004” for example, mainly acted as a tax cut for multinational corporations that used the very low taxation of repatriated money to pay big dividends to shareholders even while they were laying off thousands of workers. Similarly, expensing provisions and other tax cut provisions (especially for oil and gas industry and other targeted industrial provisions) mainly gave more money to managers and owners, not workers. Real wages of workers have fallen, while corporations sit on big kitties of cash–keeping the productivity gains for managers and owners and not sharing them with workers and certainly not creating new jobs for new workers.

What about the small company owners that the National Federal of Independent Business brings in to calim that any tax increase is a job killer? See Bloomberg article, above. That’s a superficially self-serving claim that is probably in truth a case of blind greed keeping business owners from admitting that federal dollars spent for unemployment, infrastructure, education and other important programs will actually create a more sustainable economy that will be better for their businesses. A little bit more in taxes now will have positive impact, not negative, on the economy. And those arguments also leave out a few of the details–like the fact that the proposed tax increase on joint returns with $250,000 or more impacts very, very few small businesses.

The hypocrisy is also evident, as coalition members refuse to limit extension of the tax breaks to the lower income group, even while they complain about deficits. The deficit argument is essentially brought out to create fear in average voters and to provide a salient objection to any additional spending that does not directly go to the benefit of business managers and owners, but it isn’t a real concern since it doesn’t enter into the discussion of whether or not to extend tax breaks to the wealthy who don’t need them.

Regretably, the Democrats don’t have much backbone on this issue. Senators Conrad and Bayh, for example, have accepted the idea that it is problematic to raise taxes on anybody during an economic slowdown. That their position doesn’t make sense–a little bit more in taxes on the wealthiest Americans won’t really affect either consumption or investment in new businesses–doesn’t seem to matter.

Tags: , , , , , Comments (1) | |

America’s Biggest Jobs Program — the U.S. Military

Robert Reich lays out some figures for the military jobs programs both in manpower and hardware:

America’s biggest — and only major — jobs program is the U.S. military.

Over 1,400,000 Americans are now on active duty; another 833,000 are in the reserves, many full time. Another 1,600,000 Americans work in companies that supply the military with everything from weapons to utensils. (I’m not even including all the foreign contractors employing non-US citizens.)

If we didn’t have this giant military jobs program, the U.S. unemployment rate would be over 11.5 percent today instead of 9.5 percent.

And without our military jobs program personal incomes would be dropping faster. The Commerce Department reported Monday the only major metro areas where both net earnings and personal incomes rose last year were San Antonio, Texas, Virginia Beach, Virginia, and Washington, D.C. — because all three have high concentrations of military and federal jobs.

This isn’t an argument for more military spending. Just the opposite. Having a giant undercover military jobs program is an insane way to keep Americans employed. It creates jobs we don’t need but we keep anyway because there’s no honest alternative. We don’t have an overt jobs program based on what’s really needed.

The Pentagon’s budget — and its giant undercover jobs program — keeps expanding. The President has asked Congress to hike total defense spending next year 2.2 percent, to $708 billion. That’s 6.1 percent higher than peak defense spending during the Bush administration.

This sum doesn’t even include Homeland Security, Veterans Affairs, nuclear weapons management, and intelligence. Add these, and next year’s national security budget totals about $950 billion.

Tags: , , Comments (10) | |

Job Creation Follow Up

For those interested in more information on job creation in the Employment Dynamics data
base these three article provide very good information.

Cordelia Okolie, “Why Size Class Methodology Matters in Analyses of Net and Gross Job Flows.” July 2004 Monthly Labor Review

Jessica Helfand, Akbar Sadeghi and David Talan, “Employment Dynamics: Small and Large Firms Over the Business Cycle.” March 2007 Monthly Labor Review

Tim Kane, The Importance of Startups in Job Creation and Job Destruction (PDF from the Kauffman Foundation Research Series, July, 2010)

All three are pdf files and for the second article the link takes you to the Monthly Labor Review where you can directly access the article.

The subject is more complex than generally thought as different methodologies can create significantly different results.

Tags: , , Comments (2) | |

Quote of the Day, Economic Recovery Edition II

David Wessel goes to a familiar source:

One big reason is that his efforts have made borrowing easy for big companies, those that can sell bonds, but not for consumers or smaller firms that rely on banks to borrow. “If you’re a large corporation relying on capital markets, the Fed and Treasury saved you,” says Charles Calomiris, a Columbia University economist. “In the other economy, the real engine of job creation, the banks aren’t lending and bank capital is still very scarce.”

Stuffing pension funds with GE Commercial Paper has never been easier. Creating the next GE (a working model this time?): a lot more difficult.

Tags: , , Comments (6) | |

AB notes on the December Employment Situation

This article is roughly 24 hours late, but I do have additional points to the headline numbers. From the BLS:

Nonfarm payroll employment edged down (-85,000) in December, and the unemployment rate was unchanged at 10.0 percent, the U.S. Bureau of Labor Statistics reported today. Employment fell in construction, manufacturing, and wholesale trade, while temporary help services and health care added jobs.

The monthly shift in the December nonfarm payroll is practically a mirror image of the month that initiated the cyclical downturn, January 2008 when the payroll fell 72k (after revisions). Not because of the similar level values, but because of the mix: it is the goods-sector employment that is dragging the aggregate number, whereas the service-sector is just barely below zero. Actually, the private sector services payroll, 80% of the total service payroll, hired 17,000 more workers in net in December.

The volatility over the last two months has been driven primarily by the service sector. As illustrated in the chart below, the first-difference of the goods-sector payroll is approaching the coveted “0” threshold level, but at a much slower pace that is its service counterpart.

The durable-goods jobs should turn up soon, at least the 64% of its payroll that is manufacturing. The ISM employment diffusion index has been above 50 for three consecutive months. And with a 78% correlation between the 3-month lead of the index and annual manufacturing jobs growth, there is hope for January 2010. However, look for ISM diffusion index values around 53 (the average ISM value that correlates with >=0% manufacturing jobs growth) to forecast positive annual jobs growth. We are just barely there.

It does seem that, as expected, the service sector (86% of December’s payroll) will pull the labor market back in positive territory in coming months.

From the Household Survey, the unemployment rate went unchanged in December at 10%. However, this is hardly good news; simple math says this rate will hover in the 9%-10% range throughout 2010 without a substantial pickup in the pace of employment growth. The reason is that the category “not in labor force” has grown by 3.4 million since May 2009.

If the number of unemployed persons falls each month over the next year by its 2005-2006 average, -48k, and just a quarter of the additional “not in labor force” persons since May (842k) re-enter at an average pace of 70k per month to find immediate employment, the unemployment rate will be 9.5% by December 2010. My point is: a serious growth momentum is needed to generate jobs, one that is not expected until initial unemployment claims drop significantly below their current 434k-level (week ending Jan. 2).

Of note, average hourly earnings rose 3 cents per hour in December to $18.80/hour. Ostensibly, this is good news for the price stability picture. However, the y/y numbers are strikingly low, just 2.2% growth in earnings since December 2008. By this measure, wage pressures are extremely muted, which is another reason that the Fed may not be too quick to exit.

The chart illustrates annual earnings growth and the unemployment rate. It wouldn’t be a stretch to expect wage growth to fall further, given the sharp upward trajectory of the unemployment rate.

There will likely be some volatility in coming months, specifically in April and May, when the Census hires temporary workers (6 weeks at $25/hour for 20 hours each week). Here is something I wrote about the Census hires some time ago.

Of note, the BLS is beefing up its report. Effective February 5, 2010 (the January 2010 employment release), the establishment survey will include more detail on hours and earnings, including those broken down by gender.

Rebecca Wilder

Tags: , Comments (9) | |

The jobs of tomorrow…?

Rdan

For the sake of argument, jobs in our future over the next few years or so appear to be in the health care industry and education. Jobs needing less education than a BA are among the fastest growing.

Where are tomorrow’s jobs going to come from? The question is more urgent than ever, with official unemployment hovering around 10 percent and with nearly one in five Americans unemployed, if you count part-time workers who want full-time jobs and people so desperate that they have given up looking for work entirely.

Most popular discussion about jobs focuses on the effects of offshoring of manufacturing jobs to China and other countries, many of which, like China, manipulate exchange rates and use subsidies to promote their industries. Combating predatory trade practices and rebalancing global trade by means of higher U.S. exports is important, in the short and medium term. But in the long run technologically driven productivity growth is the most important factor in shaping employment in the U.S. and every country in the world.

Productivity and innovation are the catch words, and examples demonstrate how this has worked in the last century. But if policy makers need to craft a response to mitigate the changes, and re-training happens, what is it going to be?

The emptying of the cubicles won’t result in permanent mass unemployment, the present prolonged crisis notwithstanding. As it has always done in the past, labor will shift from more mechanized to less mechanized sectors. But what will those jobs be?

The aging of the boomers accounts for only 10 percent of the growth. The rest comes from increasing demand. That’s because productivity growth in agriculture, construction and manufacturing has greatly reduced the cost of food, shelter and appliances. In the U.S. and similar nations, the freed-up income tends to be used on quality-of-life goods, of which healthcare is the most important.

…the economist Robert Fogel, “Just as electricity and manufacturing were the industries that stimulated the growth of the rest of the economy at the beginning of the 20th century, healthcare is the growth industry of the 21st century. It is a leading sector, which means that expenditures on healthcare will pull forward a wide array of other industries, including manufacturing, education, financial services, communications and construction.”

Another widespread myth holds that most Americans need to go to college in the future. In reality, most of the fastest-growing jobs, including those in healthcare, do not require a four-year bachelor’s degree. According to the Council of Economic Advisers: “The categories with some education required beyond high school are growing faster than those not requiring post-secondary schooling.

None of this means that we don’t need world-class scientists and engineers, or that we don’t need to rebuild our manufacturing export industries, or that we don’t need to hire people to design and build up-to-date infrastructure and energy systems. High-tech agriculture, manufacturing and infrastructure and related business and professional services will remain essential to economic dynamism. But thanks to ever smarter machines, fewer and fewer people will work in the primary (field), secondary (factory) and tertiary (office) sectors. Most of the job growth will be in the “quaternary” sector of healthcare and other qualify-of-life services.

Tags: , , , , Comments (1) | |

Weekend charts: the destruction of the "goods-producing" payroll

Rebecca

The BLS establishment survey (nonfarm payroll) reports that the accumulated job loss since December 2007 is 5.02% (almost 7 million jobs), blowing the total job loss of the previous “biggie” recessions, the 73-75 and 81-82 recessions, out of the water by 2.5% and 2%, respectively. There’s no question that it has been bad, with almost every industry slashing payroll.

The chart illustrates the total accumulated job loss across the major industries spanning December 2007 to August 2009 (nonfarm payroll listed here). Assuming that the recession is over (the consensus and key indicators seem to indicate that a business cycle trough has been found), then there are just two men left standing (adding jobs over the cycle), education and health services and government (barely). Even the historical job anchors , other services, professional and business services, and financial activities, are down between 1.8 and 8%! The job loss is broad and deep.

However, the industry contributions to total job loss show that the job destruction is heavily weighted in manufacturing and construction, which account for roughly half of the total drop in nonfarm payroll (-2.5% of the total -5%). But manufacturing and construction hold just a 16% share of the entire payroll.

Productivity numbers, i.e., growing amid record output loss, would suggest (even manufacturing productivity saw growth in Q2 2009) that factories are running on skeleton crews, which is efficient given the drop in demand. And a resumption of aggregate demand may be partially satisfied by adding hours, but that will only go so far. Firms will need to hire, and hire soon after demand starts to grow again.

Rebecca Wilder

Tags: , , Comments Off on Weekend charts: the destruction of the "goods-producing" payroll | |