Comments on economics, mystery fiction, drama, and art.

Thursday, May 13, 2010

Long-term unemployment and older workers

Catherine Rampell, in the New York Times (May 12), presents an argument that the rise in long-term unemployment is a consequence of the destruction of many jobs, in manufacturing, but also in administrative support, office, clerical, and similar fields, have been destroyed by technical change and will not come back. She also argues that those jobs that have been destroyed had been held disproportionately by older workers, with the consequence that long-term unemployment--which has skyrocketed--has been concentrated on older workers.

The first part of that argument seems to me to be sound. But for the second--the concentration of long-term unemployment among older-workers--I can find no evidence. There would be, I think, two consequences of concentration of long-term unemployment among older workers. First, unemployment rates of older workers would have risen relative ot the overall unemployment rate. Second, labor force participation rates of older workers would have declined relative to the overall labor force participation rate. Neither of these have happened.

Let's look at look at the unemployment rates for (a) the overall population, (b) workers age 55-59, and (c) workers age 60-64. I can't seem to be able to paste the resulting chart here, but it shows, so far as I can tell, no difference in the patterns of change in the unemployment rate for these three groups. For older workers, the unemployment rate bottomed out at about 2% in 2006, rose to about 8% early this year, and has since fallen to a little less than 7%. The overall unemployment rate bottomed out at around 4% in the spring of 2006, rose to a litle over 10% early this year, and has since fallen to a little less than 10%. (I'm using not-seasonally-adjusted reates, which is all that's available for older workers.)

So let's look at labor force participation. While the overall labor force participation rate has been declining (from about 67% in 2000 to about 65% now), labor force participation has been increasing among older workers. For 55-59-year-olds, it's up from about 69% in 2000 to about 74% now. For 60-64-year-olds, up from about 47% in 2000 to about 64% now.

I see literally nothing to suggest that long-term unemployment is, in fact, concentrated among older workers.

(All data from the BLS.)

Friday, May 07, 2010

Rational expectations

I recently, in another venue, had this exchange with a younger economist:
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Other economist (OE): The idea that tenure confers lifetime employment has turned out false across many departments and programs across the country. This story about potential program cuts at UNLV has a choice quote:

Me: I've said for years that tenure makes you slightly harder to fire...but harder to fire than if you don't have tenure. So it has some value. Which is why a lot of studies suggest that tenured faculty members actually work at a discount.

OE: Absolutely. Yet this is the first widespread fiscal crisis for my generation of economists. I think for many if my generation of academics, tenure was perceived as essentially job-for-life type of security where you could only get fired for cause or, theoretically for failing post-tenure review. The past two years have been an eye-opener to the fragility of that thinking.

Me: Financial exigency was always there in the provisions, even if people ignored it. And now, given the condition of many state government budgets (Illinois is about as bad as any, which makes me glad I don't work in a state-supported institution there; Indiana, where I am, is not so bad), financial exigency is alive and kicking.

OE: Of course, but my generation of academics probably dismissed that possibility. Now, not so much.

Me: Ah, irrational expectations...

OE: Well, it is might be irrational but then personal experience means a lot in these things. My grandparents used to sing the praises of annuities and downplayed equity. During my early career, I scoffed at this advice. Now, through our recent experience, I am a bit more sympathetic to that view. Similarly, the idea that financial exigency would be invoked is not something that any of my mentors ever mentioned - is it because it hadn't been invoked even during their careers? Clearly the language is in every faculty handbook for a reason, but I am not sure if I call it irrational if we have never seen a situation in which FE would be invoked on such a wide-spread basis.

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I cite this exchange for a reason. Rational expectations theory argues that people form their expectations about the future using all available information. And I have known the other economist, when dealing with macro theoretical issues, to invoke the rational expectations hypothesis. But note that, in this case, we clearly see expectations being formed without taking into account all the available information. (There's literally no way that anyone mentoring graduate students over the past 25 years would not have known about the actual use of financial exigency to revoke tenure. It was not simply a contractual possibility that was never invoked.) And these are expectations, not consistent with rational expectations theory, of someone trained in and conversant with rational expectations theory.


So why sould we think that rational expectations theory provides us with a coherent explanation for decision-making when we know that even those who profess it don't use it? (And, yes, I know that anecdote is not evidence, but sometimes the opportunity is just too good to pass up.)

It's time for some GOOD NEWS!!!

A really good employment report today. The BLS reports that payroll employment rose by a whopping 290,000 in April. Employment gains were evident acros the economy:

Total Increase in Employment:.......290,000
Private Sector:................................231,000
Manufacturing:.................................44,000

Business, professional services:......80,000
Education and health services:........35,000

Of the major industry categories, only transportation and warehousing showed an employment decline (down 19,500).

Average weekly hours and weekely earnings were essentially flat, but that's good news, really. The added employment was not caused by spreading hours across more workers, or by workers being willing to accept lower wages.

In the household survey, employment growth was also strong--170,000 more people reported being employed. And, the labor force grew by 805,000, and is now essentially back to its April 2009 level. The growth in the labor force is good news--it suggests that people are becoming more optimistic about their ability to find work, are more willing to look for work. Because of the growth in the labor force, the unemployment rate did edge up (to 9.9%), but, in the context of strong employment and labor force growth, that's not too troublesome. Teenage unemployment rates actually fell.

If there's a fly in this ointment, it's that the number of people unemployed for 27 or more weeks continues to rise, as does the number of people reporting that they are working part-time but want full-time work.

If we get several months in a row of this sort of employment increase, though, that'll change. Cross your fingers.

Thursday, May 06, 2010

Time for a baseball post: Robin Roberts and his dopplegangers

Robin Roberts, the great Phillies pitcher of the 1950s, died today at age 83, Joe Posnanski has written a moving portrait of him, which is well worth your time. What I'm here to tell you about is Robin Roberts and his dopplegangers--two pitchers, one from (mostly) the 1960s/70s and one from (mostly) the 1970s/80s. These three pitchers have stunningly similar career statistics, so similar that they are almost impossible to tell apart. One was born in Zeeland, Michigan, the other in Zeist, The Netherlands. (Roberts, more prosaically, came from Springfield, Illinois.)
Robin Roberts, Jim Kaat, and Bert Blyleven.

Here's the data:

....................Roberts..........Kaat.............Blyleven
W...................286...............283.................287
L....................245...............237..................250
W-L%.........0.539.............0.544..............0.534
ERA..............3.41...............3.45................3.31
G....................676...............898.................692
GS..................609..............625.................685
GF...................49...............102.....................3
CG.................305...............180.................242
SHO.................45.................31..................60
SV....................25.................18.....................0
IP.................4688.2..........4530.1.............4970
H..................4582.............4620................4632
R..................1962.............2038................2029
ER................1774.............1738................1830
HR................*505*..............395..................430
BB..................902.............1083................1322
IBB...................69...............116....................71
SO................2357.............2461................3701
HBP..................54...............122..................155
BK......................3....................6...................19
WP...................33................128.................114
BF..............19,174...........19,023............20,491
ERA+..............113................108.................118
WHIP.............1.17...............1.26................1.20
H/9..................8.8.................9.2...................8.4
HR/9...............1.0.................0.8....................0.8
BB/9................1.7.................2.2....................2.4
SO/9................4.5................4.9....................6.7
SO/BB.............2.6.................2.3...................2.8


I am, perhaps, most amazed by Roberts' being charged with only 33 wild pitches in his career (although there's a lot of scorer discretion there; it'd be interesting to check their catchers' passed balls). Roberts also, and rather famously, gave up a lot of homers--but so did Kaat and Blyleven. Bert, obviously, was more of a strike-out pitcher.

For all the similarity in their statistics, they really weren't all that similar as pitchers. Roberts was almost entirely a fastball pitcher; Kaat came up as a power pitcher, but for most of his career changed speeds and moved the ball around (and, late in his career, developed a knuckler); Blyleven, or course, was famed for his curve. Roberts was 6'0", 190; Kaat, 6'4", 205; Blyleven, 6'3", 200. Roberts attended Michigan State; Kaat, Hope College (in Michigan); Blyleven signed out of high school, from California.

Roberts, of course, is in baseball's Hall of Fame. Kaat and Blyleven are not.

Wednesday, May 05, 2010

Lessons from the Great Depression

I re-read this week Peter Temin's book Lessons from the Great Depression (MIT Press: 1989), which is of extraordinary relevance to our current situation. The book is a set of lectures (the Lionel Robbins Lectures) that Temin delievered in the UK in 1989, in which he lays out his views about the causes of the worldwide economic collapse of the 1930s and about the sources of the eventual recovery.

He sees the collapse stemming from continued adherence to a theory of the way in which national economies interact with each other, with an initial deflationary impulse then transmitted both internationally and amplified domestically. He argues that tentative policy steps to arrest the decline, or to spur recovery, were ineffective because these steps were seen as a part of a policy regime that was inadequate to the real conditions of the global economy. Ultimately, he argues, the recovery could not occur until, in two countries (the US and Germany, in both cases following the coming to power of "outsider" governments), the old orthodoxy was decisively replaced by what was immediately seen as a new policy regime aimed at reversing the deflationay impulses of the late 1920s and early 1930s and focused on a return to full employment.

While the particular policy regime that led, according to Temin, to the Great Depression is no longer much with us (he blames adherence to, and an attempt to restore behavior consistent with, the gold standard), this general story seems extremely plausible in our current situation. We developed, through the 1980s and 1990s (but beginning earlier) a policy regime based on a theory of financial markets emplasizing (a) rational expectations and (b) a fairly strong form of the efficient markets hypothesis. In this world, deregulation of financial markets, according to the theory, would generate increased efficiency in financial activity and would thus support expanded real economic activity. The policy regime was thus one that stressed deregulation, financial innovation without much restriction, reduced concern for lending and underwriting standards, increased financial leverage, and the use of new (and fairly opaque) instruments to manage risk.

The results have not been pretty. Taking Temin's analysis as a template, one would suggest that we need a new policy regime, one that constitutes as much of a break from the recent orthodoxy as breaking with the gold standard did in the 1930s. Temin's story [and Barry Eichengreen's exhaustive analysis of the gold standard (Golden Fetters: The Gold Standard and the Great Depression 1919 - 1939 (Oxford University Press: 1992)] makes it clear that such a break is difficult even to think of, much less to act upon.

I think we need to take the necessity of developing a new policy regime seriously. And, while there are financial regulation proposals in Congress, it may be that none of them actually constitutes a clear enough break with the "old" regime as we need. Times like this, I could wish I'd decided to specialize in financial economics all those years ago...