There’s been a lot of response to my argument that the loss of residential construction jobs did not play a major role in the recession, rather falling NGDP was to blame. Bob Murphy countered with some graphs showing the level of employment in construction was quite different from building starts (or building completions for that matter.) But what matters is employment in residential construction, so lets break out the data by category. I will simplify this BLS data by adding both construction workers and trade workers, since most of the employment on both residential and non-residential structures is trade workers. (These two categories include the vast majority of all construction workers, the remainder are building infrastructure.) Here are the totals in thousands:
Category January 2006 April 2008 October 2009
Residential 3422 2931 2172
Non-residential 3204 3436 2771
Total 6626 6367 4943
Un-rate 4.7% 4.9% 10.1%
If you look at the total level of construction employment, you see that data that caused Bob Murphy to reject my hypothesis. Although housing construction was down sharply by April 2008, total construction employment had fallen only slightly. But that data has no bearing on my claim that the decline in residential employment contributed heavily to the recession. We need to focus on residential construction jobs.
Even in the residential sector, it is true that jobs fell more slowly than construction activity. But I’d still argue the data strongly supports my hypothesis:
1. Almost 40% of the job loss had occurred by April 2008, yet the national unemployment rate remained relatively low. Those workers mostly found jobs in non-residential construction, or other fields, or in a few cases returned to Mexico.
2. In mid-2008, economic forecasters were predicting fairly low unemployment for the year 2009, even though they already knew that housing starts had fallen much faster than housing employment.
3. In mid-2008 commercial real estate prices were still quite strong, despite the fact that residential housing had been declining for more than 2 years. No spillover was expected.
4. Then NGDP fell sharply after June 2008. Even if there had been no pre-existing subprime crisis, one would expect a sharp break in NGDP to severely depress the housing industry. Not surprisingly, it was after mid-2008 that prices began falling in non-subprime markets like Texas. Surely a big portion of the post-April 2008 housing downturn was caused by the fall in NGDP. Australia did not see a decline in NGDP, and did not see a housing crash in 2008-09, despite even more inflated prices.
5. So nearly 40% of the job losses had little effect on the national unemployment rate, and a big portion of the remaining 60 % were almost certainly caused by the drop in NGDP. How much of the rise in the national unemployment rate can be plausibly attributed to job losses in housing not attributable to a fall in NGDP? I’d say well under one percentage point of the more than five percentage point increase in the unemployment rate. What do you think?
PS. I can’t get the BLS link to work, they are series CES2023610001, CES2023620001, CES2023800101, CES2023800201.