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Article Artículo

Casey Mulligan on Work Sharing

Casey Mulligan used his Economix blog post to discuss the topic of work sharing. It's always good to see work sharing get some attention and Mulligan raises many of the right issues.

I will correct a couple of points. Mulligan tells readers:

"It is also possible that work-sharing would reduce employment by making jobs less attractive to people who desire full-time work. One reason that people sometimes justify commuting long distances to work or enrolling in demanding training programs – trucking and nursing are two such occupations — is that they expect to recoup those cost by taking advantages of opportunities to earn extra by working long hours."

Neither of these claims is quite right. Long commutes are a disincentive to short workdays, but one could easily imagine shorter working hours being associated with fewer working days rather than shorter work days. (Anyone hear of a 4-day week, say 4 days at 8-9 hours per day?) Of course, if most workers had fewer week days then we would all enjoy shorter commutes.

The other point about fewer hours providing less incentive to train for jobs needs two important qualifications. First, if work sharing is a short-term alternative to layoffs, then it does not imply a reduction in average hours. It would simply reduce the risk of being unemployed and replace it with an increased risk of being forced to work fewer than desired hours. If we assume that most workers are risk averse, this should increase the desirability of training for jobs since there will be a lower probability of being out of work altogether.

If we follow the route of Western Europe and have shorter work years (they work on average about 20 percent less than us), then it is important to keep in mind that no one is literally being prevented from working. In other words, in countries where the average work year is 1500 hours, no one arrests truck drivers or nurses who want to work extra hours. If they want to find a second part-time job in addition to their normal full-time job they are free to do so, just as many people in the United States work at more than one job.

Dean Baker / May 10, 2013

Article Artículo

Economic Growth

Workers

Growth Still Slow Despite Uptick in April Jobs Report

Much analysis of the economy is excessively swayed by one or two economic reports or short-term fluctuations that may be driven by random factors like the weather. This appears to be the case following the Labor Department’s release of the April jobs report last week. In a post for the Roosevelt Institute's Econobytes, economist Dean Baker, co-director of the Center for Economic and Policy Research, on why the April jobs report does not presage an economic boom:

The April jobs report showed somewhat faster than expected job growth for the month, along with upward revisions to the prior two months’ numbers, and a drop in the unemployment rate to 7.5 percent. This led many commentators to speculate that the recovery was accelerating and that perhaps the Federal Reserve Board should be pulling back from its quantitative easing program. A more careful assessment of the data does not support this view.

  • The Commerce Department released a report showing that durable goods orders had declined 4.0 percent in March from their February level.
  • Even pulling out the volatile transportation component, the drop was still 2.0 percent.
  • More narrowly, new orders for non-defense capital goods (excluding aircraft) rose 0.9 percent in March, but were still almost 4.0 percent below their January level. The March number is less than 0.2 percent above the year ago level suggesting that the equipment investment component of GDP is barely growing.

The data that the Commerce Department released on construction last week was not any better.

  • In spite of strong growth in residential construction, total construction spending fell 1.7 percent in March driven by a 4.1 percent falloff in spending by the public sector.
  • This sector will likely continue to show weakness as cutbacks at all levels of government, coupled with weakness in non-residential private construction, offset growth in the residential sector.

Dean Baker / May 09, 2013

Article Artículo

Ecuador

Latin America and the Caribbean

World

Private Bank Profits Don’t Represent the Health of the Economy

Bloomberg’s Nathan Gill wrote a particularly one-sided article on Thursday, in which he states that “Ecuador’s bid to reduce poverty by taxing its banks is threatening to deepen the nation’s economic slump.”

“Slump” seems somewhat dire to describe the state of the Ecuadorian economy. In 2012 the economy grew by 5 percent, and it is projected to grow by 4.45 percent for 2013.

The report also offers no convincing evidence that Ecuador’s taxation of its banks is hurting the economy. 

The article specifically focuses on a set of reforms that took effect on January 1, including the elimination of banks’ tax deductions for reinvested profits and a 0.35 percent tax on assets held abroad. The reporter argues that a sharp drop in bank profits in the first quarter of this year was a result of the taxation. He then argues that an increase in the banks’ interest rates must also be due to the reforms:

Non-government banks, including Citigroup Inc (C).’s local unit, raised rates on corporate loans by an average 0.21 percentage point in the first quarter to 8.88 percent, the highest since November 2010, according to central bank data. That compares with a decline of 0.72 percentage point to 8.81 percent in Colombia and an increase of 0.01 percentage point to 5.79 percent for similar loans in Peru.

However, this causality is not at all clear.  It is more likely that this modest increase in interest rates is attributable to a recent uptick in inflation. Consumer prices increased at an annualized rate of 4.6 percent in the first quarter of this year, as compared to a rate of 0.2 percent in the last quarter of last year.

CEPR and Arthur Phillips / May 08, 2013

Article Artículo

Affordable Care Act

Someone Notices the Decline in Hours

Most coverage of the April jobs report celebrated the 165,000 new jobs reported for the month which was somewhat better than consensus predictions. Almost no one noticed the decline in the length of the average workweek. As a result of the fall in average hours, the April reduction in the index for total hours worked tied for the largest drop in the recovery.

Catherine Rampell does pick up on this point in a NYT Economix blog post today. Noting the decline, she raises the possibility that it is related to the Affordable Care Act, which requires firms that employ more than 50 full-time workers to either provide health insurance or to pay a penalty. Since the cutoff for a full-time worker in this provision is 30 hours per week, there would be an incentive to keep hours under this cutoff.

While Rampell expresses skepticism of this explanation, it probably deserves even less credence than she gives it. It is important to remember that this issue would only be relevant for firms that employ more than 50 workers and don't currently provide health insurance for their workers. The overwhelming majority of firms that employ more than 50 workers already provide health insurance. Furthermore, most workers are employed at firms that employ fewer than 50 workers and are not close to this cutoff.

The share of the workforce that could plausibly be affected by this cutoff would almost certainly be well under 10 percent. This means that we would have to see very large movements in hours for this group of workers in order to move the overall average. Also, this issue just became relevant in 2013 which will provide the basis for the firms' obligations when this provision of the ACA comes into effect next year. If the ACA is a big factor in the general trend in hours then we should be seeing a very different pattern in 2013 than we did in 2012. We don't.

Dean Baker / May 08, 2013

Article Artículo

Larry Summers Says that Reinhart-Rogoff Type Mistakes Are "Distressingly Common" Then Goes on to Prove His Point

Larry Summers weighed in on the famous Reinhart-Rogoff Excel spreadsheet error in a Washington Post column this morning. His first big lesson from the debate is:

"Anyone close to the process of economic research will recognize that data errors like the ones they made are distressingly common."

Summers immediately demonstrates the truth of this assertion as he tries to make a second point about inferring the future based on statistical regularities from the past.

"Trillions of dollars have been lost and millions of people have become unemployed because the lesson learned from 60 years of experience between 1945 and 2005 was that 'American house prices in aggregate always go up.' This was no data problem or misanalysis. It was a data regularity until it wasn’t. The extrapolation from past experience to future outlook is always deeply problematic and needs to be done with great care."

The problem with Summers story is that American house prices in aggregate did not always go up. In fact, for the century from 1896 to 1996 they just kept pace with the overall rate of inflation. Here's the story using government data from 1953. (Robert Shiller constructed a series going back to 1896 from a variety of data sources.)

sales-prices-v-rents

Source: Bureau of Labor Statistics, Federal Housing Finance Authority, and Author's calculations.

Dean Baker / May 06, 2013

Article Artículo

The Secret of the Weak Recovery: We Had a F***ing Housing Bubble

The problem with economics is not that it's too complicated; the problem is that it's too damn simple. This problem is amply demonstrated by all the heroic efforts made by economists to explain the weakness of the current recovery.

We've had economists tell us that the problem is that we are now a service sector economy rather than a manufacturing economy. The story is that inventory fluctuations explain much of the cycle. Since we don't inventory services, we will have a slower bounceback in terms of production and employment. (There is a simple problem, since we don't inventory services, the downturn should also be less severe in a service dominated economy. How does this story fit with the worst downturn since the Great Depression?)

We've also been told that the problem is underwater homeowners who can't spend like the good old days because they are underwater in their mortgages. The problem with this one is that we only have around 10 million underwater homeowners, the vast majority of whom have relatively modest incomes. The emphasis is on "only" because, while 10 million is a lot of people to be underwater, it is not a lot of people to move the economy.

The median income for homeowners is $70,000. (Median is probably appropriate here rather than average, since it is unlikely that many wealthy people are underwater.) Suppose that being above water would increase consumption by each of these homeowners by $5,000 a year. This is a huge jump in consumption for people with income of $70k. (Do we think these homeowners are saving an average of $5,000 a year now?) This would lead to an increase in annual consumption of $50 billion a year or less than 0.3 percent of GDP. This would be a nice boost to output, but it would not qualitatively change the nature of the recovery.

Dean Baker / May 06, 2013