Janet Yellen has argued that the long term unemployed are not permanently out of the labor force, and that with faster growth in aggregate demand we can re-absorb many of those people. Kevin Erdmann has done a number of thoughtful posts arguing that the extended unemployment benefits, which ended at the beginning of this year, raised the jobless rate somewhat.
This story caught my eye:
It’s been a rough year for the long-term jobless, with Congress refusing to renew an extension of federal unemployment benefits and some states slashing already-meager safety net programs, but a new study by a pair of Federal Reserve Board economists offers some hope for the future.
In a paper issued this week, Tomaz Cajner and David Ratner find that the percentage of the unemployed who have been jobless for more than 27 weeks – the definition of “long-term” unemployment – has been dropping sharply in recent months, and that there is strong evidence to suggest that it is because they are finding jobs rather than simply dropping out of the labor force altogether.
The news is good for the jobless, and it’s also good for Cajner and Ratner’s boss, Federal Reserve Board Chair Janet Yellen, who has staked out a public position claiming that as the economy continues to recover, the long-term jobless and even those who have left the workforce in discouragement, would begin to find work again.
Yellen’s position is in stark opposition to a competing theory backed by prominent Princeton University economist Alan Krueger and others, which holds that the long-term jobless are highly marginalized. In Krueger’s analysis, the long-term jobless have been so alienated from the workforce, for example, that even their presence in large numbers is not enough to drive down wages.
Further support for Yellen’s theory appeared yesterday in the National Association for Business Economics Business Conditions survey. NABE found that fewer companies are having trouble attracting skilled workers today than did this time last year – a counterintuitive finding, given that the economy has added 1.2 million jobs in the last 12 months and skilled workers were, presumably, among the most attractive candidates for hire. A possible explanation is that, as per Yellen’s prediction, discouraged workers are rejoining the labor force.
In their paper, Cajner and Ratner point out that in terms of creating the large number of long-term jobless, the Great Recession was much worse than previous economic downturns. It peaked at 45 percent of the jobless, whereas in the 1982 recession, it topped out at 26 percent.
But the government did not offer 99-week unemployment benefits during previous recessions.
“In many ways the fight against unemployment during the recent recovery has been mainly one of bringing down the long-term unemployment rate,” they write. And finally, that’s starting to happen.
“Since December 2013,” according to Cajner and Ratner, “the long-term unemployment rate dropped 0.5 percentage point, thereby accounting for almost the entire decline in the aggregate unemployment rate.
Oddly, the media discusses Yellen’s explanation but not Erdmann’s. Or maybe it isn’t odd, maybe it’s normal.
Off topic: Back in 2009 we were told that there had been a housing “bubble.” That there was all sorts of wasteful malinvestment. We now know that there was much less malinvestment than people assumed, and I doubt bubbles even exist.
First cities like New York and San Francisco came back. Then much of the East and West Coasts. Then Texas. And now Miami is red hot. Those empty condos were absorbed several years ago, and they can’t build new ones fast enough. Imagine how strong the US housing market would be right now if the government hadn’t cracked down on immigration in 2006, and then drove NGDP down sharply in 2008-09
The conventional wisdom will eventually need an alternative explanation for the Great Recession. How about tight money?
On another issue, Harold Pollack tweets:
Halbig straightforward case of conservative judicial activism. It’ll be curious see whether any commentators who opposed ACA acknowledge it.
I do. I opposed Obamacare, and also think that when the law is ambiguous the courts should go with clear Congressional intent.
BTW, Kevin Erdmann has an excellent 11 part series that explains why low interest rates lead to less leverage, not more. It also touches on lots of other interesting topics. Here’s one example from part 10:
This relates to another topic where I would reverse the standard narrative – international capital flows and wage levels. It frustrates me to see economists universally referring to the movement of production to low wage economies, when the opposite is true. Sometimes when the earth revolves around the sun, it looks like the sun is circling the earth. And, here, we have uncontroversial data that capital flows overwhelmingly to high wage economies. In cases where capital flows change noticeably, it is usually where institutional improvements in a developing economy lead to an expansion in the productive basket of goods they can supply, and so capital flows there to accommodate the new production. Because wages are generally low at an absolute level, it appears that production is moving to exploit low wages, but this is absolutely wrong. The trigger for expanded production is also a trigger for higher wages. Production doesn’t move to where wages are low – it moves to where wages are rising. This subtle distinction is so fundamental and so important to a proper understanding of international economics, and yet so universally misstated.
I’m still working my way through the series.