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December 08, 2005
Job Market Question
This is kinda interesting. You routinely hear that the job market needs to create 150,000-180,000 new positions each month in order to keep up with new entrants into the workforce. But according to these Bureau of Labor Satistics unearthed by Jon Henke, the average number of monthly entrants during the Bush years has been 110,000 each month. Are his numbers wrong and, if not, what accounts for the drop?
December 8, 2005 | Permalink
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Try this on for size ... The numbers cited by Jon Henke start the month Bush took office. The first major economic plan he initiated was the supply-side tax cut of May 2003. If you move the numbers from January 2001 to May 2003, the average monthly job growth rises to over 123,000. If you take into account the typical economic lag that accompanies any major economic reform (we'll go on the low side and say nine months), the average monthly job growth rises to 173,667. That fits neatly into the 150,000-180,000 rate now doesn't it? The growth rate of the economy since May 2003 is 4.1% which blows Clinton's rate of 3.6% out of the water. Furthermore, Clinton handed Bush a poor economy with a meager 2% growth rate that didn't get back on its feet until the tax cuts of May 2003. Nevertheless, the unemployment rate remains dead on its natural (the best rate that can be sustained over the long term) rate. This is down over one percent from May 2003 and the June 2003 high of 6.3 percent. Liberals need to leave the Bush economy out of the picture, because the more you complain about it, the stupider you all look.
Posted by: Jeremy Wick | Dec 8, 2005 2:49:10 PM
Jeremy, I think Ezra's talking about entrants into the job market, not a comment on the elegance of Bush's economic policy.
I'd be interested in hearing a definitive answer to Ezra's question, actually, but I could posit a guess: Maybe less people are entering the job market on average as a net figure, which includes those dropping out of the job market? Henke cites "Average Monthly Labor Force Growth," which could conceivably include the labor force drop-outs.
Posted by: J. Puckett | Dec 8, 2005 3:00:35 PM
/insert Disraeli quote about lies, damn lies and statistics...
The far more telling numbers are that real wages are falling, that more and more people are without health coverage and that an ever-increasing number of Americans are living in poverty.
The Bush economy is broken.
Posted by: stumpy | Dec 8, 2005 3:23:35 PM
Two things:
1.Population bubble is older, not younger
2.How are military recruits counted?
Posted by: Roxanne | Dec 8, 2005 3:26:20 PM
An Atlanta Fed working paper by Julie Hotchkiss provided an estimate of 98,000/month based on demographic factors (as in Roxanne's point #1) leading to declining labor force participation rates: "Employment Growth and Labor Force Participation: How Many Jobs Are Enough?"
I don't think this paper fully disposes of cyclical and bad Bush economic policy explanations for declining LFP rates, though.
Posted by: Tom Bozzo | Dec 8, 2005 3:47:32 PM
The answer to your question is simple: Henke is stupid, and thinks that apples are oranges.
The apple is the monthly job growth figure required to keep up with estimated new entrants to the workforce.
The orange is the measured change in the size of the actual workforce.
The effect on these fruits during a period of declining labor-force participation rates is left as an exercise for the student.
Oh, and Wick? I hope you're trading your analysis out in the markets. My portfolio can use all the stupid counterparties it can get.
Posted by: wcw | Dec 8, 2005 3:54:47 PM
One thing we keep hearing from people like DeLong is that unemployment numbers are artificially low because people (especially women) are choosing to stay out of the labor force since looking for work isn't worth the trouble for them in the current weak labor market. Wouldn't that account for the 40,000-70,000 difference between new workforce entrants under Bush and the general, long-term numbers? (I think that this is what wcw is saying as well.)
Posted by: Blar | Dec 8, 2005 4:43:48 PM
Krugman wrote an article earlier this week that unpacks the monthly job report numbers. It is a good read. I'd link to it but NYT has a subscription wall.
Suffice to say, it ain't nearly as good as it's supposed to look.
Posted by: sprocket | Dec 8, 2005 5:05:19 PM
Real wage rate is falling?!?!?! Give me a break, do you people look at the numbers or do you listen to the CNN talking points? While the hurricane-bloated numbers put the price index at a 12-month rise of 4.3%, core inflation remains at a 12-month rise of 2%. Wages have increased 3.2% over the last year, and until we reach October 2006, the price index will be bloated by the 1.2% price increase from September.
Simply because prices are rising doesn't mean inflation is. If the Fed tighens up the money supply, inflation doesn't occur. Inflation comes from the release of too much money into the market, deflating the value of the dollar and its purchasing power. The Fed has done the former and the dollar continues to rally in the world market. If energy prices are rising, people should logically cut back on their energy use. Gas prices are WAY DOWN, lowest since March, thus home heating costs are all that remain high. Therefore, cut energy costs by keeping your house 1 or 2 degrees cooler (or less warm) this winter. If you offset the tremendous rise in energy costs by using less of it, then the increase in the real wage rate will become a reality.
Posted by: Jeremy Wick | Dec 8, 2005 5:34:38 PM
"If you offset the tremendous rise in energy costs by using less of it, then the increase in the real wage rate will become a reality."
You could also stop eating, and consider it a 10-20% monthly raise.
Posted by: bob mcmanus | Dec 8, 2005 6:02:12 PM
Unfortunately, BLS doesn't let you link directly to their statistical breakdowns, so I can't point you to the numbers, but you can go to "Get Detailed Statistics", and then "Create Customized Tables", you'll get a wide array of statistics/categories from which to choose.
Pick "Both Sexes, all races, all origins, 16 years and over, all education levels, all marital statuses" and then "Civilian Labor Force" (and click the "monthly" box, so you can get the breakdown specific to Bush's term). You'll get all the numbers there, going back many years. You can go back farther, though the default is, I think, to 1994. You can even click to be shown a graph, if you're the visual learning type. You'll see the numbers I noted in the post.
So, why has it changed? Well, the answer is that the labor force participation rate was artificially high by 2000. (bubble and all) The historic rate was between 65.5% and 67.(something or other)%. If you look in the comments to my post, there should be a graph of the data. When the tech bubble burst, and the US experienced the multi-event hits of the recession, 9/11, corporate scandals, and geopolitical uncertainty (those were the disruptive economic events noted by Alan Greenspan), the labor force participation rate went back down. People choose to go to school, retire, stay at home, etc.
The "real wages" thing is interesting, and I'd actually be keen to talk to you about that sometime, Ezra. Specifically, I wonder what things would look like if we looked at Real Disposable Income or real total compensation. A generally unremarked-upon phenomenon of more recent times is that compensation is quickly shifting from wages to benefits, and total compensation isn't reflecting that fact.
I think it might also be important to note that there's widespread agreement that inflation has historically been overstated. The Boskin Commission found in the late 90s that that it was overstated by approximately 1.1% points per year due to imprecise methodology. The BLS changed some of that methodology, but -- as of the late 90s -- they still believed that inflation would be overstated by about .65% points per year.
Over the course of years, that adds up to quite a large discrepancy.
Posted by: Jon Henke | Dec 8, 2005 6:31:46 PM
Wick, in re "do we look at the numbers," let me tell you what: I'll post my last five calendar year's worth of monthly returns if you post yours. That's two straight spluttering posts filled with utter misreadings of the data. I am really curious whether your apparent lack of skill is so great it actually swamps the effects of dumb luck.
Henke, you're still stupid. There is no "historic rate" -- there is a long-term uptrend going back the better part of a century (that's mostly the economy finally realizing women are good for something besides cooking and cleaning, mind you). Your mission, should you dare to accept it, is to explain why 2% of men over 20 and 1% of women who were working in 2000 are not working today. I'm not even going to get into your groping around compensation and pricing issues. Unless you want to post your portfolio returns, too. For that, I'll play.
For the record, I have very conservative friends, Nixon-republican types. We may disagree on policy and ideology, but we never disagree on the facts, because fucking up the facts costs you money. Wick and Henke, God love you kids, but for the love of all that is holy, index your money. Index. Index. Index. You kids are totally clueless.
Posted by: wcw | Dec 8, 2005 8:23:04 PM
There's been a steep fall in labor force participation since Bush took office. That means that the labor force has been growing significantly more slowly than the working-age population--and also significantly more slowly than anyone would have guessed it would back in January 2001.
Hence our puzzling labor market: the unemployment rate is relatively low, but the currently unemployed find it hard to find jobs, and payroll employment growth has been nothing to write home about.
Posted by: Brad DeLong | Dec 8, 2005 10:37:54 PM
IIRC, median income growth has been flat for decades.
Those few on the high end of the scale are probably enough to skew the average income numbers upwards. But median wage is a different measure than the average wage.
A rising median tide raises all boats.
Posted by: Ara Rubyan | Dec 9, 2005 7:27:30 AM
Ok, what am I missing here? Henke says the assumption that it takes 150K jobs to meet the numbers of new employees is false, then 'proves' it by telling us job creation during the Bush Administration only nets out at 110K?
Posted by: Ric | Dec 9, 2005 7:57:12 AM
The "labor force" is not the same as "employed people", Ric.
Posted by: Jon Henke | Dec 9, 2005 9:52:46 AM
Don't just index -- pay a professional to tell you which indexes to choose and which vehicles to use for exposure to them. You'll thank me in forty years, and I'll apologize for being so impolite about my advice.
Posted by: wcw | Dec 9, 2005 2:08:01 PM
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