Keep those Talons In, Fed Hawks!

August 7th, 2014 at 12:02 pm

As the job market tightens, we may well see some increases in the pace of wage growth. I, and more importantly, millions of working people, certainly hope so. But predictably, pressure is building on the Federal Reserve to stomp out any such thing sooner than later, based on the fear that wage pressures will set off higher and higher rates of inflation.

Dean Baker and I think otherwise, and elaborate a number of reasons why this fear is a) not well-founded and b) poses a real threat to living standards. Over at PostEverything.

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3 comments in reply to "Keep those Talons In, Fed Hawks!"

  1. Nathan J Kerr says:

    How will the market tighten with an immigration policy that is completely broke, goes unenforced, and hinges on the nation trusting the same government that promised enforcement after the last round of amnesty to trust them this time around.

    12-20 million flooding the markets will keep wages low as demand for work decreases and the labor pool increases.


  2. urban legend says:

    When the employment-to-population ratio of the prime working age group (25 -54) is still four percentage points below where it was in 2007, the word “tighten” just does not compute. We have gained back only one-third of that metric that was lost as of the Great Recession nadir in that group, in contrast to other wealthy countries whose employment rates are generally higher even than where we were at the start of the current troubles. And I challenge anyone to come up with a plausible explanation why there would be some “structural” or cultural change accounting for such a sudden drop in that age group. The recent Atlanta Fed study that purported to support such a claim seems highly suspect when the labor force is described as “the people who want a job.” even the “marginally attached” statistic, which certainly should be added to those who “want a jobs” almost certainly understates the total reserve of those who really would prefer to have a job, because a condition of being in that group is that the person would have been able to take a job the same week it was offered. What’s missing are people who make temporary adjustments because they foresee no job openings for which they would be qualified and make other living arrangements that could not be shifted on a moment’s notice.

    It’s one thing for the BLS to maintain statistical categories with certain definitions for consistency purposes. It’s quite another for policy-makers to make questionable assumptions about what those categories mean and use them formulate policy. It should be taken as a fact that changes in the employment-to-population ratio at times when jobs are becoming plentiful is a better statistic for judging how many people who are not employed at any given period of time actually “want a job” than specific statistics which, because of the need for definitional consistency, are at best proxies for the underlying reality.


    • urban legend says:

      Example: In the one year period between January, 1999 and January, 2000, over 3.5 million additional people took jobs. Yet the unemployed declined by only 270,000 in that period, and in January, 1999 less than 1.4 million were counted as “marginally attached” to the labor force and therefore officially could be considered among those who wanted jobs (and arguably could be included in a broader definition of the labor force). Where did the extra 1.8 million people come from? Not from population growth in one year. No, they necessarily came from the people who by BLS statistical definition were not among those who “wanted jobs.” Yet in the space of a few months, they showed, and we can see it only in rapid change in the employment-to-population ratio, that when they felt they had a chance to get jobs, sure enough they did “want a job” and they crawled out of the woodwork to get one.

      Accordingly, for policy-making purposes (including a realistic assessment by those living in comfortable precincts of the extent of human suffering out in the hinterlands that comes from high unemployment), it needs to be understood that even the broader statistic that would include the “marginally attached” in a more realistic view of the size of the labor force still substantially understates the truth.

      And we haven’t even gotten to the part-time jobs taken only because there are so few full-time opportunities, either. Tighten? Um, no effin’ way.


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