Was that a “Trump effect” in the Steelers/Bengals debacle?

January 11th, 2016 at 7:13 pm

This will be a very short post because what I know about football could fit in a thimble with a lot of room left over. But I did happen to catch the end of the Steelers/Bengals wildcard game Saturday night and I found it pretty horrific to watch. Now, what do I know (answer: nothing)? But the announcers said the same thing.

There were illegal, dangerous, concussion-inducing hits. Certain players, especially on Cincinnati, clearly couldn’t control themselves, even at the cost of a playoff game. And apparently, the fan(atic)s set an arrest record, urinated on each other, and cheered injuries.

To what extent does such behavior relate to the rise of candidate Trump, who elevates boorishness, bullying, and disdain as the attributes we need to “make America great again?” I have no idea, though he himself engaged in a bit of whining about the refs throwing flags on hits he thought were legit.

OK, that’s it from the OTE sports page. Tomorrow, we’ll get back to productivity measurement.

Turning SNAP (food stamps) into a block grant…

January 11th, 2016 at 8:33 am

…is a terrible idea that would do to SNAP’s invaluable countercyclical function what welfare reform did to TANF’s. That’s the point of this piece over at WaPo this AM.

Because I wrote this on Sunday and didn’t want to spend the whole day futzing with data, I used annual data for the figure. But the monthly data shown below (which are easy to get for SNAP; harder for TANF) more clearly show the recent reversal in SNAP caseloads, which lag the recovery for all the reasons I mentioned in my post.

The figure shows SNAP caseloads as a share of the population. Spikes are due to events, like Katrina, that lead to a sudden, sharp bump in SNAP receipt.

I only have a few cycles in there, but the current pattern is similar–adjusting for depth of the downturn–to the early 1990s recession/recovery. Read Dottie R’s link in my WaPo piece re another important factor in play in this recession: the increase in participation rates among “eligibles,” something I judge to be a positive development.

Source: USDA, BEA

Source: USDA, BEA

You can’t fix poverty by breaking the safety net

January 8th, 2016 at 3:15 pm

Republican Speaker of the House Paul Ryan and Senator Tim Scott are hosting a poverty forum tomorrow for some of the R presidential candidates. In advance, they wrote a joint op-ed in the Wall Street Journal about how they’d fight poverty, and how the damn liberals keep getting it wrong (“A Republican Cure for Liberal Policy Failures on Poverty”). Jeb Bush also spoke on these issues at a recent town hall.

Poverty’s a serious problem in America, and I of course welcome their interest. But because their diagnosis is fundamentally flawed, their prescriptions often risk increasing poverty and inequality, while restricting opportunities for millions of American children.

Ryan’s theory of the case is that anti-poverty policy as crafted by liberals gives a person a fish, as it were, instead of teaching them to fish for themselves. He writes (with Scott) that, while safety net programs “prevent extreme deprivation,” they’re “not only putting a floor under people’s feet; [they’re] gluing their feet to it.”  Bush says, similarly, that “transfer payments to try to provide for people in poverty [are] actually putting limits on people’s possibilities.”

The solution is…wait for it…less government (Ryan/Scott):

“By limiting itself, government can actually expand opportunity when it gets out of the way and paves the road to collaboration—whether it’s between students and teachers, job seekers and employers, or people in need and people who can help. It is through that free, personal exchange that people learn the skills they need to succeed.”

This is merely a gussied up version of “if your only tool is a hammer, then everything looks like a nail.” The idea, and Ryan’s budgets very much underscore this point, is that we can help the poor more by doing less for them.

The evidence points strongly in the opposite direction. As CBPP’s Arloc Sherman noted yesterday (and Ben Spielberg and I have explained in detail), a large and growing body of high-quality research, like that described in the graph below, shows that the impact of income support and safety net programs like SNAP and Medicaid do not just occur upon receipt and immediately fade away. They have important, positive long-term benefits for children.


Next, the idea that liberal policies have failed is belied by…you know…data. Ryan, Scott, and Bush use the badly designed official poverty measure, which fails to capture the effect of safety net programs. They then argue that safety net programs haven’t worked. An inclusive poverty measure shows that the safety net’s effectiveness at reducing poverty has grown nearly ten-fold since 1967, as Chad Stone explained today.


OK, this next point is especially important. Bush says in a one-pager that he will eliminate SNAP (formerly food stamps), one of the nation’s most important anti-hunger programs, and replace it and other programs with block grants to states. That’s a big part of Ryan’s agenda as well.

But when you block grant these federal programs, meaning you give states fixed funding to administer them, you tear out one of their most important functions: their counter-cyclicality, i.e., their ability to expand with need. That’s the veritable definition of a safety net program: to catch people when the market fails.

Bob Greenstein documents why such a proposal will likely cause a reduction in food assistance, deprive SNAP of its important countercyclical properties, and increase poverty. The figure below tells a compelling part of that story. It shows how two anti-poverty programs responded in the last recession: SNAP—not a block grant—and TANF, which was block granted in the mid-90s. SNAP worked as it was designed to, expanding to catch those knocked out of work in the downturn. TANF hardly budged.

Source: CBPP

Source: CBPP

Basically, these guys want to turn SNAP into TANF.

Ben S and I will have a longer piece out early next week when we hear what more these politicians have to say at their forum. And as I suggested, we’re wide open to good ideas (they’ve shown interest in expanding the EITC for childless workers, for example). But as it stands, my concern is that want to fix poverty by breaking the safety net. And that’s a really bad idea.

2015 was solid year for job growth. What happens next matters a lot.

January 8th, 2016 at 9:29 am

Payrolls were up 292,000 in December and the unemployment rate held steady at a low rate of 5% in another in a series of increasingly solid reports on conditions in the US labor market. Upward revisions for the prior two months added 50,000 jobs, leading to an average of 284,000 jobs per month in the last quarter of 2015. In another welcome show of strength, the labor force expanded in December, leading the participation rate to tick up slightly.

December’s data reveals that US employers added a net 2.7 million jobs in 2015 while the unemployment rate fell from 5.6% last December to 5% last month. While the level of payroll gains did not surpass 2014’s addition of 3.1 million, it was otherwise the strongest year of job growth since 1999.

Simply put, for all the turmoil out there in the rest of the world, the US labor market tightened up significantly in 2015. Based on some important indicators I discuss below, we are not yet at full employment. But we’re headed there at a solid clip, and that pace accelerated in recent months.

This last point is observed in my patented monthly jobs smoother, showing average monthly job gains over periods of 3, 6, and 12 months. Over the past 6-12 months, payroll grew by about 220K-230K per month; over the past three months, as noted, that pace quickened to 284K per month.

Source: BLS, my calculations.

Source: BLS, my calculations.

The industry story was largely positive in December, as 64% of private industries added jobs, though part of this could be a function of the unusually warm weather. For example, construction employment was strong, which may reflect unseasonable warmth, although the sector has been adding jobs in recent months.

The retail sales results for December may pose an interesting challenge, though more research is needed. Retail trade employment was essentially unchanged last month, up only 4,300. But transportation and warehousing added over 20,000 jobs in each of the last two months. Could these data be emblematic of the ongoing shift in holiday buying from “brick and mortar” stores to the internet? It will take a lot more digging to see if that’s the case, but I wouldn’t be surprised if this shift turns out to be real.

Manufacturing employment, however, remains a dark spot, due in part to the strong dollar, as discussed below. Factories added only 8,000 jobs in December, and only 30,000 for the whole of 2015, compared with 215,000 in 2014.

As noted, the job market tightened considerably in 2015, but a variety of critical indicators suggest we’re not yet at full employment:

–The underemployment rate, called U-6 in this report, was unchanged at 9.9% last month. While the Federal Reserve has focused more on the official rate, which, at 5% is about at the level they consider consistent with full employment, I calculate that the full employment rate for U-6 is closer to 8.5%. U-6 continues to be elevated due to 6 million part-timers who would rather be full time workers. This measure of slack fell by 760,000 in 2015, but it is still too high.

–Labor force participation: As noted, this rate ticked up a tenth to 62.6%, but it remains somewhat depressed. While some of the drop in participation is due to retirement from the aging workforce, my estimate is that full employment still has the potential to pull in enough potential workers from the sidelines to push the rate up by around 1.5 percentage points.

–Wage growth: It is finally picking up, and thus finally reflecting a tighter job market with some competition among employers for workers. Hourly pay grew 2.5%, before inflation, last year, compared to 1.8% in 2014. But it is essential for policy makers not to conflate any acceleration in wage growth with inflationary acceleration in wage growth. In fact, inflation, even leaving oil out of the picture, has been low and steady. Wage competition is a good thing, representing a more favorable alignment of labor supply and demand than workers have enjoyed in years. Let it proceed!

To what extent is the recent stock market turmoil, here and in China, in these jobs data? Only about 5% of our exports go to China, so, unlike countries like Brazil and some African nations that export extensive commodities to China, we’re not likely to feel a slowing China through export channels.

Imports, however, are another story. Around 20% of our goods’ imports are from China and we already run large trade imbalances with them of around 1.5% of GDP, more then $300 billion/year. As the yuan depreciates in value relative to the dollar, this could exacerbate that gap and amplify the unfavorable manufacturing results cited above.

This trade channel has gotten less attention than the finance channel in recent days, as our own stock market has sold off partly in reaction to China’s market woes. Global capital flows have, of course, been portentous in recent years, and no one should underestimate their potential impact, as once they go south, we too often find out that our financial markets are a lot more inter-connected than we thought. But so far, we see the impact of the strong dollar in the jobs and growth numbers more than we see financial turmoil spilling over from securities’ markets.

In sum, 2015 was a good year for job growth. By the end of the year, the tightening job market finally started showing signs of generating some wage pressures. But we’ve got a ways to go before the economy’s growth is broadly shared. For that, we need to get to and stay at full employment. We’re not there yet, but were getting closer every month. It is thus essential to accommodate these developments, especially though complementary monetary policy. Unless inflation starts to behave in a much more threatening manner–a probability I believe to be low–when it comes to the job-market expansion, love it and leave it alone!

“Refried confusion” on automation and jobs in manufacturing

January 6th, 2016 at 3:23 pm

In the words of that great Ph.D. of New Orleans funk, Dr. John, “Refried confusion is making itself clear” in this NYT piece about the impact of automation on manufacturing employment. The piece makes the common claim that robots are wiping out jobs in the sector, but if there was any evidence in there, I missed it. And I know of some pretty compelling evidence to the contrary, along with some key variables left out of this analysis.

It’s critical to be clear about what’s under the microscope re this question of jobs and automation. It is not whether or not machines replace humans. That of course has gone on since the Luddites of the early 1800s and well before. The claim today, whether its purveyors make it explicitly or not, is that the pace at which labor-displacing technology is entering the workforce is accelerating. Automation must be driving jobs out of a sector—in this case, manufacturing—at a pace that’s demonstrably faster than demand for manufactured goods can offset.

That is, if 10 workers could make 100 widgets in a week, and now 5 workers with a robot can generate that same output, the other five lose their jobs unless demand for widgets doubles such that the producer needs to keep the 10 workers to produce the 200 widgets the market will bear.

But you will note that I’ve embedded two key intervening variables within this example: productivity growth and demand.

First, if the pace of automation is accelerating, it should show up as faster productivity growth—more output per labor hour. Thus, any article making this claim must either show this trend or at least explain what’s wrong with my logic.

Now, we know that productivity growth has slowed economy-wide, and not just here in the US; it’s one of growth economists’ greatest contemporary concerns. But what about manufacturing productivity? The Times story—and I don’t mean to pick on this one; this is a very commonly held view—implies that manufacturing productivity must be speeding up. Is it?


The figure shows the annual growth rate in overall manufacturing and durable manufacturing, like making cars, steel, big machines, etc., where you might imagine robots hanging out. Because these numbers are both very bouncy and even spikey around recessions, I’ve added a smooth trend. But whether you look at the actual rates or the smoothed ones, recent years show productivity growth on the factory floor to be low, flat, and perhaps even falling in the trend.

Source: BLS, my trends (HP filter)

Source: BLS, my trends (HP filter)

What about employment? The piece cites one expert as arguing that “because of advances in technology, manufacturing simply doesn’t employ as many people as it once did.” But that’s certainly not what the history of employment in the sector shows. The figure below shows monthly employment in manufacturing since the beginning of time (as per BLS: 1939). Factory employment was remarkably stable in terms of headcounts for decades from the 1970s through 2000. It was of course falling as a share of total employment over those years, a trend in all advanced economies, which has as much to do with trade as technology, as manufacturing employment shares were growing in developing countries that were and remain our trade partners.

Source: BLS

Source: BLS

Obviously, technological advances occurred all throughout that period while employment counts were stable. But the intervening variable—demand—absorbed productivity gains and held employment roughly constant at around 17 million.

What happened around 2000? Well, China entered the WTO and there’s research that shows US/China competition was a strong negative for American manufacturing employment and wages in those years. I’m definitely not claiming that’s the whole story, but it is the other big piece that’s missing from this analysis. Global competition has of course been a highly significant factor in US manufacturing outcomes, as US consumers’ demand for manufactured goods has been increasingly met from abroad. Some of that is “market forces,” but I’ve argued that some of it is a function of currency management that has disadvantaged our manufacturing sector relative to those in countries that sustain large trade surpluses (see Chapter 5 here).

Bringing in these other variables—productivity, employment trends (actual vs. imagined), currency, who’s sustaining large deficits vs. surpluses, how demand is being met—is, in my view, essential, as it drives the policy debate. In fact, the Times story is framed around the presidential debate, suggesting that candidates who talk about reviving manufacturing are all ignoring robot-driven realities.

If what’s happening is simply accelerated labor-displacing technology, that’s not something I nor most others would want to stop. We need faster productivity growth! But many of these other issues, especially currency and our persistent trade deficits in manufactured goods, should be thought of as policy variables with relevance to trade negotiations, for example. I strongly doubt the declining trend of factory jobs as a share of total employment will reverse course. But the number-of-jobs story is a lot more up for grabs. I want the candidates to tell me what they’re going to do about that!

Even the previous figure shows employment growing out of the recent recessionary trough. And while you can’t see it in the figure, in 2015 manufacturing employment was largely flat. Technology at work? Of course not—automation doesn’t enter and leave the economy like that; it’s a more gradual force. What hurt our manufacturers last year is the strengthening dollar and its impact of the goods trade deficit (not currency manipulation, I’d argue; more relative growth rates and relative central bank actions).

So there’s a much more nuanced story in play here than a simple automation one. But I believe it’s the right one.