Voluntary unemployment: what it really means

I was teaching the conventional labor market story in the intermediate macro class last week. I showed students how, involuntary unemployment would be by definition a contradiction in terms in the neoclassical model, since unemployment, other than frictional and voluntary, was not possible in equilibrium. In disequilibrium, unemployment results from some friction or market imperfection, or a shock, but it can be solved by lower real wages.

But in equilibrium, unemployment basically means that the person, even though was looking for job, was unable to find one because it decided not to work at the given real wage. As I told students, they have accepted, more or less uncritically, from their principles textbook, the notion that involuntary unemployment does not exist. I joked that all of them accepted without knowing the idea that workers that are unemployed are lazy, and do not want to work basically (jokes aside that's actually what the model suggests).

Yesterday this exposé of the views of Fed officials was published (h/t Rohan Grey). Charles Plosser, prominent real business cycle (RBC) macroeconomist, and ex-president of the Federal Reserve Bank of Philadelphia, according to the transcripts, argued that lack of "work ethic" was a common problem and that "passing drug tests, passing literacy tests, and work ethic are the primary problems [a friend] has in hiring people." His wife too, according to him had heard that "literacy, work ethic, and drugs as impediments to hiring." Not surprisingly, for him the unemployed are dumb, lazy, drug addicts. Well, at least he is consistent with his model.*

* Worth remembering that fluctuations in employment for RBC authors are all about shocks to the labor demand curve, productivity, and that the labor market is essentially always in equilibrium.

Long-Term Unemployment High, Regardless of Education

By Heidi Shierholz

Job opportunities have been so weak for so long that jobless workers continue to get stuck in unemployment for unprecedented lengths of time. Currently 3.7 million unemployed workers have been searching for a job for more than six months, more than three times the number of long-term unemployed there were in 2007, before the recession began. We often hear the claim that long-term unemployment in this recovery is due to unemployed workers not having the education or skills for the jobs that are available. A look at the data, however, shows that this is not what’s driving today’s long-term unemployment crisis. 

Read rest here
And for another post on the issue, see here 

The ‘Better Off Budget’: An EPI Analysis of The Congressional Progressive Caucus Proposal

By Joshua Smith

The Congressional Progressive Caucus (CPC) has unveiled its fiscal year 2015 (FY2015) budget, titled the “Better Off Budget.” It builds on recent CPC budget alternatives in prioritizing near-term job creation, financing public investments, strengthening the middle and working classes, raising adequate revenue to meet budgetary needs while restoring fairness to the tax code, protecting social insurance programs, and ensuring fiscal sustainability. The Better Off Budget aims to improve the economic well-being of the working and middle classes by focusing on ending the ongoing jobs crisis, and it provides substantial upfront economic stimulus for that purpose. This paper details the budget baseline assumptions, policy changes, and budgetary modeling used in developing and scoring the Better Off Budget, and it analyzes the budget’s cumulative fiscal and economic impacts, notably its near-term impacts on economic recovery and employment.

Read rest here.

For Dean Baker's critique of Obama's platform, see here 

Dean Baker on Obama's High Unemployment Budget

By Dean Baker

President Barack Obama’s proposed federal budget for 2015, which he sent to Congress on March 4, pushes the debate in a positive direction in several areas. For that, he should be given credit. However, on the most important issue, a budget that would get us back to full employment, his proposals fall way short. Let’s start with the positives. President Obama proposes a four-year infrastructure program that would cost just over $300 billion. This comes to $75 billion a year, or roughly 0.4 percent of GDP. This idea could go far toward improving and upgrading our infrastructure and is much needed for this purpose. It would also provide a boost to the economy. Assuming the typical multiplier of 1.5 times the amount spent for the expected stimulus, the program would create more than 800,000 jobs. A second item on Obama’s agenda is universal pre-kindergarten. This idea would provide a boost to many children from low- and moderate-income families, whose lack of early education can stunt their prospects for social mobility, according to several important studies. It would also make it much easier for their parents to work, since arranging for quality child care is often difficult and expensive. The price tag for this proposal is surprisingly low: only $76 billion over the next decade. That amount comes to 0.18 percent of projected spending over the period. The relatively small price tag for this program would be more widely known if reporters covered the budget in a way that was intended to inform their audience by contextualizing numbers in terms of overall spending.

Read rest here.

For an analysis by the Economic Policy Institute on the budget proposed by the Congressional Progressive Caucus, see here

Krugman and the Fear of Wages

Although Krugman is a New Keynesian, who, by definition, oftentimes implicitly assumes a natural rate, he is quite on point:

Four years ago, some of us watched with a mixture of incredulity and horror as elite discussion of economic policy went completely off the rails. Over the course of just a few months, influential people all over the Western world convinced themselves and each other that budget deficits were an existential threat, trumping any and all concern about mass unemployment. The result was a turn to fiscal austerity that deepened and prolonged the economic crisis, inflicting immense suffering.

Read rest here.

Josh Bivens: Nowhere Close: The Long March from Here to Full Employment

By Josh Bivens

The last official business cycle peak occurred in December 2007. After that, the economy entered 18 months of virtual freefall—with job losses averaging more than 750,000 per month for the worst six-month stretch. The official end of the recession was June 2009—and some have recently declared full recovery has been reached in the 54 months since, as 2013 per capita GDP finally exceed its pre-recession levels. However, for the very large majority of Americans who rely on paid employment for the vast majority of their income, recovery likely still feels very far off. And they’re right—by any reasonable definition the United States is far from having reached a full recovery. That’s because simply clawing back to the per capita income level that prevailed before the start of the Great Recession is far too low a bar to clear to declare mission accomplished on recovery. The reason for this is simple: Joblessness (and the sapping of bargaining power that accompanies its rise even for still-employed workers) rises whenever a gap develops between the economy’s underlying productive potential and aggregate demand for goods and services. The intuition here is simple: A given number of customers’ demands can be satisfied with fewer people as each incumbent worker becomes more productive, and each new potential worker (new graduates, for example) seeking to enter the workforce will only be employed if there is extra consumer demand for what he or she produces. So, demand has to rise in line with the economy’s productive potential in order to keep joblessness from rising.

Read rest here. 

Heidi Shierholz: Still No Jobs for More Than 60 Percent of Job Seekers

By Heidi Shierholz

The Job Openings and Labor Turnover Survey (JOLTS) data released this morning by the Bureau of Labor Statistics showed that job openings increased by 60,000 in January, bringing the total number of job openings to 4.0 million. In January, the number of job seekers was 10.2 million (unemployment data are from the Current Population Survey). Thus, there were 10.2 million job seekers and only 4.0 million job openings, meaning that more than 60 percent of job seekers were not going to find a job in January no matter what they did. In a labor market with strong job opportunities, there would be roughly as many job openings as job seekers. We are not in a strong labor market. Furthermore, the 10.2 million unemployed workers understates how many job openings will be needed when a robust jobs recovery finally begins, due to the existence of 5.7 million would-be workers who are currently not in the labor market, but who would be if job opportunities were strong. Many of these “missing workers” will become job seekers when we enter a robust jobs recovery, so job openings will be needed for them, too.

Read rest here.

CEPR: North Carolina Proves Cutting Unemployment Insurance Pushes People Out of the Labor Force

By John Quinterno and Dean Baker

Last year North Carolina undertook a radical overhaul of its unemployment insurance system. Among the changes, legislators sharply reduced the amount and length of regular unemployment insurance, cutting the maximum weekly insurance amount by 35 percent and reducing the maximum duration of compensation from 26 weeks to, currently, 17 weeks. By implementing the cuts in weekly benefit amounts in July, North Carolina forfeited  its ability to participate in the federally-funded Emergency Unemployment Compensation program, and consequently, an estimated 70,000 individuals immediately lost long-term unemployment insurance, while another 100,000 individuals who still would have been eligible through the fall saw their insurance lapse  sooner than would have happened.

According to the legislation’s elected supporters, the overhaul was a “difficult decision” needed to fix “a welfare-dependent program” and push unemployed workers to get serious about finding a job--any job.  

We’ve now had some time to test this view and the initial results do not look promising for proponents of the cuts. The statewide unemployment rate has in fact fallen sharply since the cuts were implemented, dropping from 8.8 percent in June to 6.9 percent in December.  

This drop, however, did not come about because people rushed out and found jobs. Employment as measured by the household survey used to determine the unemployment rate rose by 41,364 persons (1 percent) between June and December, far too little to explain the sharp drop in the unemployment rate. According to the household survey, only 13,414 more persons (0.3 percent) were at work in December 2013 compared to a year earlier.

Read rest here

Gerald Friedman - Whose Recovery?

By Gerald Friedman

There is a story that when the late union leader Walter Reuther was given a tour of a GM plant, a manager introduced him to a set of the company’s new robots.  The manager challenged Reuther to say how he would organize the robots into the UAW.  The union leader supposedly responded by asking: how will General Motors sell cars to the robots?  While American unions have failed to organize the workers in the new economy’s factories, its capitalists seem to have figured out a good answer to Reuther’s question. We shouldn’t be surprised that conservative politicians and orthodox economists are calling for the Federal Reserve to end its program of monetary ease and for the Federal government to end its program of extended unemployment insurance.  Believing in Say’s Law and the virtues of unregulated markets, they have never been comfortable with state action to help the unemployed; instead, they have long argued that the only proper role for government is to protect price stability and the integrity of banking system. What should surprise us is that so few in the business community are pushing back against these ideologues in support of policies to bolster economic growth and employment.  Robert Reich asks whether capitalists and managers have forgotten the basic Fordist compromise, in which businesses rely on affluent workers to consume their products? If a rising tide lifts all boats, don’t capitalists benefit when unemployment falls and workers have more to spend?  And shouldn’t they support policies that bring the tide in?

See rest here

The Madness of Austerity in One Chart

From Mother Jones

January's job numbers were fairly dismal, but the bad cheer wasn't equally spread. Private sector employment, as usual, increased—by 142,000 jobs last month. At the same time, public sector employment declined. Government employment at all levels was down 29,000 in January.Aside from the brief census blip in early 2010, this has been the usual state of affairs for the past four years, ever since the recession officially ended. The chart below shows public and private sector employment indexed to 100 at the end of the recession. Private sector employment is up 6.8 percent. Public sector employment is down 3.4 percent. And that's during a period when population grew 2.3 percent. On a per capita basis, government employment has declined more than 5 percent since 2009, and it's still declining.This is the price of austerity. If public sector employment had been growing normally during this period, we'd have about a million more jobs than we do now and the unemployment rate would probably be below 6 percent. We are our own worst enemies.

See more here.

EPI: Recovery Fails To Reach Escape Velocity in 2013

By Josh Bivens

We now know that the U.S. economy grew at a 3.2 percent annualized rate in the last quarter of 2013, and grew 1.9 percent during all of 2013. This is simply too slow to generate a full recovery from the damage inflicted by the Great Recession in a reasonable amount of time. Too many policymakers seem eager to move on to other economic issues, but the necessary condition for addressing almost every other economic challenge—be it boosting job quality or increasing opportunity or checking the rise of extreme inequality—is a return to full employment, and that should be the nation’s first priority.

See rest here and here

The Economic Policy Institute on the Unfinished March

An EPI Report that is worth reading on the incomplete economic goals of the civil rights movement . From the intro:

"On August 28, 1963, more than 250,000 people participated in the March on Washington for Jobs and Freedom. They marched for equal access to public accommodations, voting rights, and the end of racial discrimination in employment. While achieving the full measure of these rights remains a work-in-progress, legislative and policy commitments to these goals were secured. But the marchers also demanded the following:

• decent housing
• adequate and integrated education
• jobs for all
• a minimum wage worth more than $13 an hour today

Fifty years later, on all socioeconomic measures, African Americans still lag whites by wide margins. At the same time, economic opportunities are shrinking for working people of all races. Until we achieve all of the march’s goals, there is little hope for reducing black-white socioeconomic disparities and providing genuine opportunity for economic advancement to all Americans."

Read the rest here.

Honduras Since the Coup: Economic and Social Outcomes

By Jake Johnston and Stephan Lefebvre of CEPR. From the abstract:

This paper presents a broad overview of economic and social trends in Honduras since 2006, including the years following the military coup of June 2009. It finds that economic inequality in Honduras has increased dramatically since 2010, while poverty has worsened, unemployment has increased and underemployment has risen sharply, with many more workers receiving less than the minimum wage. While some of the decline was initially due to the global recession that began in 2008, much of it is a result of policy choices, including a decrease in social spending.

Read rest here.

Unemployment Insurance Extensions Haven't Expired With Long-Term Unemployment So High

Following the last post (see here and here), it is worth pointing out that over the course of preceding recessions since 1957, Congress has not let long term unemployment insurance to cease with sustained high unemployment. 

By Heidi Shierholz

Four and a half years after the official end of the Great Recession, there is still a gap in the labor market of nearly 8 million jobs. With job opportunities so weak for so long, workers have gotten stuck in unemployment for unprecedented lengths of time. The share of the workforce that is long-term unemployed is nearly twice as high today as it was in any other period when Congress allowed an extended benefits program to expire. The figure shows the share of the labor force that has been unemployed for more than six months. In the Great Recession, that share rose to more than two-thirds higher than the previous record set during the downturn of the early 1980s. It has since come down significantly, but it is still above the previous record. Today’s long-term unemployment crisis is no mystery; it is exactly what we would expect given how long our labor market has been as weak as it has. It is not the fault of individual unemployed workers failing to exert enough effort or flexibility in their job search.

Read rest here

Unemployment Reigns While Benefits Cease

Involuntary unemployment in the US disdainfully reins supreme. And with inaction on extending long-term unemployment benefits, not only will a critical lifeline be lost, but every state will face the prospect of employment losses in 2014 that will set back positive gains experienced in 2013, see here.

A previous post on the issue can be seen here.

Cut Unemployment Benefits? A Bonehead Idea

By Heidi Shierholtz

New data released this morning by the Bureau of Labor Statistics show that 13.9 percent of the workforce was unemployed at some point in 2012, much higher than the official 2012 unemployment rate of 8.1 percent. How can this be? Each month, the official unemployment rate provides the share of the labor force unemployed in that month. But this understates the number of people who are unemployed at some point over a longer period, since someone who is employed in one month may become unemployed the next, and vice versa. So the official annual unemployment rate—which is actually the average monthly unemployment rate for the year—is much lower than the share of the workforce that experienced unemployment at some point during the year.

Read the rest here.

Don't Believe The Hype!

 

The latest news is that the U.S. unemployment rate slipped to to a five-year low of 7 percent in November, apparently an encouraging sign for the American economy.

The US Labor Department notes that employers added 203,000 jobs, nearly matching October’s revised gain of 200,000; this supposed strengthening of the job market is likely to fuel speculation that the Fed may start to scale back bond purchases when it meets later this month (according to Mark Weisbrot, however, this would not necessarily be a good idea - see here)

Before we get swindled, let's look at some data; according to the Economic Policy Institute, millions of potential workers are still sidelined and if we were to count those who have fallen out of the labor force due to discouragement, the real picture is as follows:

• Total missing workers, October 2013: 5,660,000;
• Unemployment rate if missing workers were looking for work: 10.3%;
• Official unemployment rate: 7.0%.

For tables & charts: see here; for info on methodology: see here.

More on Unemployment: "Missing Workers"

 

The official US unemployment rate significantly underestimates the weakness of available job opportunities. This is due to the existence of a large pool of “missing workers” (also termed 'discouraged workers' in the literature)—potential workers who, because of weak job opportunities, are neither employed nor actively seeking a job.

EPI's “missing worker” estimates:

Total missing workers as of September 2013: 5,190,000

	Actual unemployment rate	Unemployment rate if missing workers were looking for work
Jan-2006	4.7%	5.1%
Feb-2006	4.8%	4.9%
Mar-2006	4.7%	4.8%
Apr-2006	4.7%	4.9%
May-2006	4.6%	4.8%
Jun-2006	4.6%	4.7%
Jul-2006	4.7%	4.8%
Aug-2006	4.7%	4.6%
Sep-2006	4.5%	4.5%
Oct-2006	4.4%	4.4%
Nov-2006	4.5%	4.4%
Dec-2006	4.4%	4.1%
Jan-2007	4.6%	4.3%
Feb-2007	4.5%	4.3%
Mar-2007	4.4%	4.2%
Apr-2007	4.5%	4.8%
May-2007	4.4%	4.7%
Jun-2007	4.6%	4.7%
Jul-2007	4.7%	4.8%
Aug-2007	4.6%	5.0%
Sep-2007	4.7%	4.8%
Oct-2007	4.7%	5.1%
Nov-2007	4.7%	4.7%
Dec-2007	5.0%	5.0%
Jan-2008	5.0%	4.7%
Feb-2008	4.9%	4.9%
Mar-2008	5.1%	5.0%
Apr-2008	5.0%	5.1%
May-2008	5.4%	5.3%
Jun-2008	5.6%	5.5%
Jul-2008	5.8%	5.6%
Aug-2008	6.1%	5.9%
Sep-2008	6.1%	6.1%
Oct-2008	6.5%	6.4%
Nov-2008	6.8%	6.9%
Dec-2008	7.3%	7.4%
Jan-2009	7.8%	8.1%
Feb-2009	8.3%	8.6%
Mar-2009	8.7%	9.2%
Apr-2009	9.0%	9.3%
May-2009	9.4%	9.6%
Jun-2009	9.5%	9.7%
Jul-2009	9.5%	9.9%
Aug-2009	9.6%	10.2%
Sep-2009	9.8%	10.8%
Oct-2009	10.0%	11.2%
Nov-2009	9.9%	11.0%
Dec-2009	9.9%	11.4%
Jan-2010	9.8%	11.2%
Feb-2010	9.8%	11.2%
Mar-2010	9.9%	11.1%
Apr-2010	9.9%	10.8%
May-2010	9.6%	10.8%
Jun-2010	9.4%	10.9%
Jul-2010	9.5%	11.1%
Aug-2010	9.5%	11.0%
Sep-2010	9.5%	11.1%
Oct-2010	9.5%	11.3%
Nov-2010	9.8%	11.5%
Dec-2010	9.3%	11.3%
Jan-2011	9.1%	11.2%
Feb-2011	9.0%	11.1%
Mar-2011	8.9%	11.0%
Apr-2011	9.0%	11.2%
May-2011	9.0%	11.1%
Jun-2011	9.1%	11.3%
Jul-2011	9.0%	11.4%
Aug-2011	9.0%	11.2%
Sep-2011	9.0%	11.0%
Oct-2011	8.9%	11.0%
Nov-2011	8.6%	10.8%
Dec-2011	8.5%	10.7%
Jan-2012	8.3%	10.6%
Feb-2012	8.3%	10.4%
Mar-2012	8.2%	10.4%
Apr-2012	8.1%	10.6%
May-2012	8.2%	10.3%
Jun-2012	8.2%	10.3%
Jul-2012	8.2%	10.6%
Aug-2012	8.1%	10.7%
Sep-2012	7.8%	10.2%
Oct-2012	7.9%	10.1%
Nov-2012	7.8%	10.2%
Dec-2012	7.8%	10.1%
Jan-2013	7.9%	10.3%
Feb-2013	7.7%	10.3%
Mar-2013	7.6%	10.4%
Apr-2013	7.5%	10.3%
May-2013	7.6%	10.2%
Jun-2013	7.6%	10.1%
Jul-2013	7.4%	10.2%
Aug-2013	7.3%	10.1%
Sep-2013	7.2%	10.2%

Source: EPI analysis of Mitra Toossi, “Labor Force Projections to 2016: More Workers in Their Golden Years,” Bureau of Labor Statistics Monthly Labor Review, November 2007; and Current Population Survey public data series

More here.

Unemployment is involuntary, not structural

There is a common misconception that unemployment is structural, that is, the economy has shifted to such an extent that there is a mismatch between quantity of labor demanded and quantity of labor supplied, based on skills, prerequisites, etc. Unemployment, which has been growing over time in the US, is mostly involuntary, that is, as a result of lack of full employment economic policy and insufficient effective demand, workers are unable to find work at living wages, even if they are actively seeking.