Interpreting the Labor Market

The employment surprise – demand shortfall, supply constraints, or statistical artefact? I discussed on WPR Central Time yesterday.

Did enhanced unemployment benefits reduce employment? Long term unemployment decreased, as did unemployment claims. So likely not.

On the other hand, two pieces of information suggest constraints to supply: (1) openings are concentrated by sector, and (2) gender disparity in terms of employment increase. From JOLTS:

Source: BLS, JOLTS

Source: BLS, Employment situation release.

Statistical issues include seasonality (which seems less likely given the y/y change in employment for s.a. and n.s.a. series are similar), and sampling error — perhaps there is a difficulty catching new firms in the sample.

Steve Englander at Standard Charter argues for the last (“US – Why NFP the miss?” May 10):

  • The BLS birth and death model that adjusts for firms (re-)opening and shutting down may be particularly imprecise under current circumstances. The BLS has adjusted its estimation procedures, but it is unclear how much their revised adjustment captures.

Interestingly, the ADP and BLS private nonfarm series diverged in April, with the change according to ADP at 742 thousand, and the BLS at 218 thousand.

13 thoughts on “Interpreting the Labor Market

  1. pgl

    An interesting review of the details. Of course this runs contrary to the pseudo analysis from the chief economist for Fox and Friends (Princeton Steve) so one has to wonder how long winded his rebuttal will be.

  2. pgl

    Under another post there were a lot of comments about the potential success of Sinovac which has joined the vaccines from Moderna, Pfizer, AstraZeneca, and J&J. Russia has decided not to participated in this crucial ally of the WHO even though the developing world needs outside funding to purchase critically needed vaccines.

    Covax originated in the EU. Trump decided that the US should ignore this organization as after all he is all about white racist America First. Fortunately, President Biden has a different view and in just the last few months our government has contributed $2.5 billion to Covax.

  3. ltr

    May 13, 2021

    Identifying the policy levers generating wage suppression and wage inequality
    By Lawrence Mishel and Josh Bivens 

    1) Centering power and policy, not apolitical ‘market forces,’ in debates over U.S. wages
    2) Wage trends and patterns to be explained
    3) The failure of automation and skill gaps to explain wage suppression or wage inequality
    4) A more convincing theory of sluggish wage growth and inequality in the U.S.: Policy-driven wage suppression
    5) The aggregate impact of the policy choices generating wage suppression

    Inequalities abound in the U.S. economy, and a central driver in recent decades is the widening gap between the hourly compensation of a typical (median) worker and productivity—the income generated per hour of work. This growing divergence has been driven by two other widening gaps, that between the compensation received by the vast majority of workers and those at the top, and that between labor’s share of income and capital’s. This paper presents evidence that the divorce between the growth of median compensation and productivity, the inequality of compensation, and the erosion of labor’s share of income has been generated primarily through intentional policy decisions designed to suppress typical workers’ wage growth, the failure to improve and update existing policies, and the failure to thwart new corporate practices and structures aimed at wage suppression. Inequality will stop rising, and paychecks for typical workers will start rising robustly in line with productivity, only when we enforce labor standards and embrace policies that reestablish individual and collective bargaining power for workers.

    Between 1979 and 2017, the compensation of median workers trailed economywide (net) productivity growth by roughly 43%, leading to rising inequality. The effects have been felt broadly: During this time 90% of U.S. workers experienced wage growth slower than the economywide average, while workers at the top (mostly highly credentialed professionals and corporate managers) and owners of capital reaped large rewards made possible only by this anemic wage growth for the bottom 90%. Because the historical legacy of racism has concentrated Black and Latinx workers in the lower half of the wage scale more so than white workers, widespread wage suppression based on class position has inflicted disproportionate harm on them. Further, while women’s wages have grown faster than those for men in recent decades, women’s wage growth still has lagged the economy’s potential. In the fight for a piece of the ever-shrinking share of economic growth available to the bottom 90%, any one group’s gain can feel like another’s loss, leading to political divisions and hindering the formation of cross-racial coalitions based on common interests as workers. In other words, the disappointing wage growth of recent decades is an important economic and political issue.

    Yet sluggish wage growth is not a political secret; it has been widely recognized across the political spectrum, even cited by both the Republican and Democratic Party platforms in 2016. The root causes of the trend have frequently been misidentified, however. One prominent interpretation is that disappointing wage growth is an unfortunate result of apolitical market forces that one neither can nor would want to alter. Since labor markets are generally competitive and workers and employers have roughly balanced degrees of market power, this argument naively assumes, fundamental apolitical forces like technological change and automation, as well as globalization, have mechanically shifted demand away from non-college-educated and middle-wage workers. But, as this paper will show, the premier research cited in support of an automation/technological theory has itself actually offered empirical metrics that demonstrate that automation/technological change fails to explain wage trends and wage inequality, especially in the period since 1995. Since the automation/technological change explanation is the preeminent explanation drawn from competitive labor market analyses based on equal bargaining power between employers and employees, the failure of automation/technological change to explain wage suppression and wage inequality represents the inability of competitive labor market analyses to adequately explain one of the most salient features of the economy over the last four decades.

    Thus, we need to look further for more convincing empirical explanations of why, during a period of rising productivity, hourly compensation for the bottom 90% of all workers has risen so slowly in spite of overall income growth. Doing so requires explaining the key dynamics. The growing wedge between rising productivity and compensation growth for the typical worker financed the increased share of compensation going to top earners, especially those in the top 1% and 0.1%, along with a declining share of income going to labor. In addition, over the last four decades there has been a persistent disparity in the growth of earnings between those in the 90–99% range and those in the middle. Further, wage disparities by gender, race, and ethnicity from the late 1970s, reflecting systemic sexism and racism, remain with us and have sometimes even worsened. Any accounting of where we are and what policies we need must address these issues.

    This paper offers a narrative and supporting evidence on the mechanisms that have suppressed wage growth since the late 1970s. We refer in this analysis to wage suppression rather than wage stagnation because it was an actively sought outcome—engineered by policymakers who invited and enabled capital owners and business managers to assault the leverage and bargaining power of typical workers, with the inevitable result that those at the top claim a larger share of income. These policy changes and the change in business practices they enabled have systematically undercut individual workers’ market (exit and voice) options and the ability of workers to obtain higher pay, job security, and better-quality jobs. These corporate and policy decisions had the most adverse consequences for low- and middle-wage workers, who are disproportionately women and minorities, the groups whose legacy of being discriminated against in labor markets means that they especially need low unemployment, unions, strong labor standards, and policy supports for leverage when bargaining with employers.

    Neither slow productivity growth nor inevitable economic forces can explain U.S. wage problems. Rather, wage suppression reflects the failure of economic growth to reach the vast majority. It was a “failure by design” (Bivens 2010), engineered by those with the most wealth and power. The dynamics are primarily located in the labor market and the strengthening of employers’ power relative to their rank-and-file workforce (which increasingly includes those workers with a four-year college degree). In other words, the dynamics that have challenged the growth of living standards for the vast majority are based on workers not sharing in economic gains, not, as some have argued, on consumers suffering from monopolistic prices. Changes in product market monopoly and corporate structures have had an impact, but primarily by squeezing supply chain profits and wages rather than by spurring higher consumer prices through much wider profit margins.

    As we will discuss, six factors can collectively explain most of the growth of wage inequality and the erosion of labor’s share that resulted in wage suppression over the last four decades (specifically 1979–2017):

    Austerity macroeconomics, including facilitating unemployment higher than it needed to be to keep inflation in check, and responding to recessions with insufficient force;

    Corporate-driven globalization, resulting from policy choices, largely at the behest of multinational corporations, that undercut wages and job security of non-college-educated workers while protecting profits and the pay of business managers and professionals;

    Purposely eroded collective bargaining, resulting from judicial decisions, and policy choices that invited ever more aggressive anti-union business practices;

    Weaker labor standards, including a declining minimum wage, eroded overtime protections, nonenforcement against instances of “wage theft,” or discrimination based on gender, race, and/or ethnicity;

    New employer-imposed contract terms, such as agreements not to compete after leaving employment and to submit to forced private and individualized arbitration of grievances; and

    Shifts in corporate structures, resulting from fissuring (or domestic outsourcing), industry deregulation, privatization, buyer dominance affecting entire supply chains, and increases in the concentration of employers….

    1. ltr

      May 13, 2021

      Middle-Class Pay Lost Pace. Is Washington to Blame?
      A new paper by liberal economists presents evidence that policymakers helped hold down wages for four decades.
      By Noam Scheiber

      One of the most urgent questions in economics is why pay for middle-income workers has increased only slightly since the 1970s, even as pay for those near the top has escalated.

      For years, the rough consensus among economists was that inexorable forces like technology and globalization explained much of the trend. But in a new paper, * Lawrence Mishel and Josh Bivens, economists at the liberal Economic Policy Institute, conclude that government is to blame. “Intentional policy decisions (either of commission or omission) have generated wage suppression,” they write.

      Included among these decisions are policymakers’ willingness to tolerate high unemployment and to let employers fight unions aggressively; trade deals that force workers to compete with low-paid labor abroad; and the tacit or explicit blessing of new legal arrangements, like employment contracts that make it harder for workers to seek new jobs.

      Together, Dr. Mishel and Dr. Bivens argue, these developments deprived workers of bargaining power, which kept their wages low.

      “If you think about a person who’s dissatisfied with their situation, what are their options?” Dr. Mishel said. “Almost every possibility has been foreclosed. You can’t quit and get a good-quality job. If you try to organize a union, it’s not so easy.”

      The slowdown in workers’ pay increases happened rather abruptly. From the late 1940s to the early 1970s, hourly compensation for the typical worker grew roughly as quickly as productivity. If the value of the goods and services that workers provided rose by 2 percent in a year, then their wages and benefits tended to go up by roughly 2 percent as well….


  4. ltr

    January 15, 2018

    Real Median Weekly Earnings for White, Black and Hispanic, * 2001-2021

    * Full time wage and salary workers

    January 15, 2018

    Real Median Weekly Earnings for White, Black and Hispanic, * 2001-2021

    * Full time wage and salary workers

    (Percent change)

    January 15, 2018

    Real Median Weekly Earnings for White, Black and Hispanic, * 2001-2021

    * Full time wage and salary workers

    (Indexed to 2001)

  5. macroduck

    Don’t mean to look a gift data dump in the mouth, but I don’t see the story in your charts. I’ve babbled on about female employment and sector issues in comments regarding April jobs data, so I can make up a story about your charts, but I’m not sure it would be the story you have in mind. Would you give us more words, please?

    1. Moses Herzog

      I think he’s just agreeing with you, other than maybe seasonality, which I take him as leaning to seasonality not being a major factor in the “surprise” numbers on employment. I think this gets back to permanent unemployment related to the jobs lost before the vaccine became widely available. Jobs that will never come back, or will be a huge time lag before they come back. I can’t seem to get many to sympathize with my view on the permanent unemployment.

  6. baffling

    childcare issues are still a major driving point with the inability to attract folks into the workforce. until we can resolve a family’s ability to provide safe and affordable childcare, you will continue to see many parents stay at home rather than work. this will remain problematic through the summer, as many of the traditional summer camps and other kids activities are still reduced. the recent approval of vaccines for children over 12 will help, but it will take time for this to impact society. and optimistically, by fall the vaccine will be available for children over 2. i think you will need to hold off much judgement on the employment (and economy) until we see what happens in september when most kids should be able to return to school face to face. i am optimistic we finally have leadership that is more than just blustery talk, but actually taking the action to make these things happen. wishful thinking as a policy only gets you so far. biden’s ability to get shots in arms has been remarkable in the usa.

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