Tag Archives: labor

Two Lines Diverge in a Labor Graph

I came across this graph in a paper* the other day, and I found it rather disturbing (yeah, economists get disturbed over odd things). It shows labor productivity and real hourly compensation from 1947 to 2010.

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The disturbing part is that the two lines are different. Not the same. Distinct.

In fact, starting around 1970, the real hourly compensation line increases at a slower rate than productivity, until by 2010 the two differ considerably.

This might not seem like a big deal. Why get disturbed by two lines?

The trouble is that standard labor economic theory says that these two lines should be the same. Workers are supposed to be paid, on average, their marginal product of labor. It says so in all the textbooks. I’ve taught it in economics courses.

If productivity increases, then wages should increase by the same amount. That’s how standards of living improve. Productivity increases, wages increase to match, and people’s lives improve. That how it’s supposed to work.

This graph says this isn’t happening, and not just for one or two years. Productivity and wages have been diverging for decades in the U.S. Workers have been growing more and more productive, yet haven’t been rewarded for that.

So who’s benefited from this increased productivity?

Have consumers benefited through lower prices? Possibly some. But productivity increases only get passed on to consumers if competition forces firms to lower prices. That doesn’t seem to be happening.

Instead, corporate profits have been reaching record levels. On the one hand, that’s a good thing. Profits are good, and increased profits mean increased stock prices. Anyone who own stock benefits from that.

The problem is that the stock owners are benefiting at the expense of the workers. After all, it’s the workers who are causing that increased productivity (possibly through more or improved capital, but still). By all rights, they should be compensated for it. Why aren’t they?

That’s a good question, and it’s hard to come to any firm conclusions based on one report. However, the only explanation that comes to mind is that workers simply haven’t had the leverage and clout to demand that management pay them for their increased productivity. Union membership has declined pretty steadily during the same period that productivity and wages have diverged.

If workers organize and demand increased compensation, firms simply shut the U.S. factories down and move overseas, where wages are lower. Productivity is, too, but there’s often still a net benefit to the firms.

That’s great for firms and shareholders. It’s just not that great – nor fair – to the workers.

Decreasing labor clout. It seems to have made all the difference.

*”The compensation-productivity gap: a visual essay”, Fleck, Glaser, and Sprague, Monthly Labor Review, January 2011

Good News – The Unemployment Rate Increased

The Bureau of Labor Statistics (BLS) had some good news for us yesterday. The unemployment rate increased from 7.8 percent to 7.9 percent.

You read that right: it’s good news that the unemployment rate increased. In fact, economists have been waiting for it to increase, and have been a little disappointed that it didn’t increase sooner.

This might sound a little balmy, but there’s method to this madness. It’s all in the reason the unemployment rate increased.

The unemployment rate is the number of unemployed people divided by the total number of unemployed plus employed. The BLS collects these numbers by contacting 60,000 households every month.

To be “unemployed”, you have to be actively looking for work. People who are aren’t actively looking aren’t included, even if they’d like to be working.

During a severe recession like we just had, lots of people get so discouraged about finding work that they give up and stop looking – or, as economists say, they exit the workforce. They’re no longer considered either employed or unemployed if they’re not actively looking.

When job markets improve after the downturn, many of these discouraged workers again start to look for work. This is a good sign for the economy, and typically indicates that things will continue to improve.

In October, the number of unemployed in the U.S. increased by 170,000, to 12.3 million. At the same time, the number of employed increased by 410,000, to 143.4 million. As a result, the unemployment rate increased from 7.8 to 7.9 percent.

I’ll be anxious to see the JOLT (Job Openings, Layoffs, and Turnover) data that will be coming out on Tuesday, November 6. It will provide more details about exactly what is going on in the job market, and what is (likely) causing it.

The Nerve of Some People: Multiple Job Holders

These days, when more than 12 million Americans are unable to find jobs, it’s important to remember that some people not only have one job, but more than one. These greedy workers actually have the nerve to be taking someone else’s job from them.

Working more than one job? Why would anyone want to do such a thing?

Well, off the top of my head, maybe … to live. Wages for many jobs are hardly extravagance these days. Someone working full time making the federal minimum wage of $7.25 an hour is going to be grossing $14,500 a year. That comes to just over $1,200 a month, even before any deductions or taxes.

That’s going to be a little rough for, say, a single parent to live off. It’s going to be tough even for a single person. How are they going to get to work? Public transit – where it exists – is expensive; more likely they’re going to have to have a car. Insurance alone is going to take a big bite. And don’t get me started about gas. Then there’s rent. Utilities. Food. Clothes. Child care. It’s pretty hard to find and keep a job unless you have a phone. When people complain that even the “poor” in America have phones and TVs and cars, they’re forgetting that these are virtual necessities for living in our country. If you don’t believe that, try getting by without them for a few months.

And don’t even think about health insurance.

To be fair, there are other reasons people have multiple jobs. Some might not be able to find full-time work, and instead have two or more part-time jobs. Some might be changing careers. Some might just enjoying working, or like variety.

Regardless of the reason, some do. But how many?

According to the Bureau of Labor Statistics, 4.8 percent of the people employed in the U.S. in September 2012 were working at more than one job. That’s actually down from a recent peak of 6.5 percent in November 1996, and it’s the lowest level in the 8 years of data available.

It turns out that when jobs are hard to find, second (and third, and … ) jobs are also hard to find, so that the percentage of workers holding multiple jobs tends to decrease when unemployment increases. In other words, they’re negatively correlated.

But not perfectly. The correlation between the unemployment rate and the percentage of multiple job holders is -0.54. They usually move in opposite directions, but not always.

So who are these job hogs? That 4.8 percent means comes to about 6.9 million people working two or more jobs. They’re pretty evenly split between men (51 percent) and women (49 percent). Most of them (54 percent) have one full-time job and one (or more) part-time job(s). About 25 percent of them have two (or more) part-time jobs. And less than 4 percent have two (or more?) full-time jobs. The rest (17 percent) have jobs with hours that vary.

So here’s to those 6.9 million hard-working, job-hogging multiple job holders. Whether they’re moonlighting just to make ends meet or just enjoying the variety, they’re not just producing extra for the economy. They’re probably paying extra taxes, too.

Economics Area 51: The Great Labor Statistics Conspiracy

The number of jobs in the U.S. increased by 873,000 jobs in September, and the unemployment rate decreased from 8.1 percent to 7.8 percent.

Coming as it does right before an election, this news has been met with skepticism on the part of those who don’t want the economy to improve. Among these of course is Fox.

An article on Fox’s website implies not so subtly that something fishy is going on. According to Fox, former Congressional Budget Office director Doug Holtz-Eakin said “This must be an anomaly. It is out of line with any of the other data.” Holtz-Eakin noted the household survey is smaller, suggesting it is not as reliable. He called estimate of 873,000 new jobs “implausible.”

Never mind that the economy created 847,000 new jobs just this past January. Or that the economy lost 1,100,000 jobs in January 2009.

I have the utmost respect for the Congressional Budget Office. That said, I might point out that Holtz-Eakin was chief economic policy adviser for John McCain’s 2008 presidential campaign and is now head of the conservative American Action Forum.

As a labor economist, I’m in a position to have an opinion on the jobs numbers. I’ve spent many, many hours poring over the detailed survey data that the Bureau of Labor Statistics produces. Just one month of Current Population Survey data is a 150 megabyte text file.

I’m not saying it would be impossible to falsify something. I suppose nearly anything is possible. But the data is so detailed and complex that it would probably take 873,000 workers just to do it.

And thousands of economics and business researchers scrutinize this data. Dissertations and journal articles rise and fall on it. To alter that data in a way that would fool the thousands of  (often critical) researchers who look at this data in detail would be an incredibly difficult task. It would require so many people to be in on it that it would pretty much be impossible to hide.

It’s a lot like open source software. The whole process is all so transparent that it’s nearly impossible to pull something.

Admittedly, a lot of the new jobs were part-time, and we’d much rather have them be full-time. But part-time is better than none at all. No one’s hoping the economy will pick up more than I am, but, as I’ve pointed out in earlier posts, the Great Recession of 2008-2009 was unprecedented in scale and scope in the post-War period. It’s taking time to recover. But it could have been worse – much worse. If you doubt that, I refer you to the 1930s.

I’ll confess that I haven’t yet dug into the details of the September 2012 labor numbers the way I have with some of the earlier data. But I will. And when I do, if I find anything odd or out of the ordinary, I’ll be the first to point it out.

As an economist, I require – nay, crave – accurate labor data above all else. If there’s the slightest chance I’m not getting it, you’ll be hearing from me loud and clear.

Oopsie: Labor Department Underestimated Job Growth

Whups.

The Department of Labor said today that it had understated total employment by about 386,000 jobs from April 2011 to March 2012. In other words, the economy created an average of 194,000 new jobs each month during this period rather than 162,000, an increase of 32,000 new jobs per month. The revisions were the result of the annual re-calibration that the government performs each year.

These jobs numbers are closely watched and form the basis of many business plans and forecasts. They can have a significant effect on business and consumer confidence, and thus can influence economic growth.

In the Labor Department’s defense, calculating and estimating these sorts of numbers is very complex and difficult. Even so, inaccuracy can lead to costly policy mistakes or even influence elections.

When George H. W. Bush (the elder) was up for re-election in 1992, the U.S. was in the midst of a recession. In June 1992, the Labor Department announced that it had undercounted the job losses by 600,000, or about 33 percent. Thus, the original numbers had made the 1990-1992 recession appear to be much less severe than it actually was. While the department denied that the undercounting was politically motivated, Democrats seized on the new figures, and the economy and severity of the recession was one of the factors that led Bill Clinton to win the Presidency that year.

There is no reason to believe that either the initial undercounting or the actual revisions were politically-motivated in this instance. Let’s just hope that this indication that the economy has been doing better than we thought will lead to more confidence – and thus more growth – in the future.