Asymmetrical Information

I have to admit, that's kind of interesting. You'd think that there would be a way to check this further. I'm just having my coffee, but it seems that the number of people with two jobs in any one pay-period is half of the difference between the surveys. Can't we check this by matching up payroll SS contribution numbers during pay periods?

I also note that total jobs (Fig. 1, link) appear to be flat for about 18 mos. If the working population grows at 2%/ yr., that's around 2 million jobs that we're down, even after the adjusted surveys come back together.

Finally, what does explain the apparent demise of NAIRU? Is it all b/c transaction costs associated with replacing or expanding the workforce have gone down? (Have they?) And is that an Interweb thing, or is its function of standardized skills, or what?

Really interesting post, Mindles.

It really reinforces how damnably difficult it is to accurately measure what are, in perspective, small changes in something as complex as the U.S. economy. Of course the profession of economics, especially where it intersects with the profession of politics, has a vested interest in overrating the breadth, depth, and precision of information; nobody gets rich and famous by saying, "I really don't know what is happening."

I don't think the lack of "notice" is much of a factor. The problem arises because, even with notice, workers do not always leave a job at the end of a pay period nor do they start a new job at the beginning of a period. For example, my current firm's pay periods end on the 15th and on the last day of the month. My prior employer's pay period ended every other Friday. So, since I did not take any time off between jobs, unless I left on a Friday AND that Friday was the 15th or the last day of the month, I was likely included on both payrolls.

We at Heritage have been writing about this for months. See, e.g.,
(Our first study on this, which got the ball rolling at BLS)
http://www.heritage.org/Research/Labor/CDA04-03.cfm

(a more recent update)
http://www.heritage.org/Research/Economy/wm550.cfm

Out of my depth here, but I'll note that Arnold Kling uses BLS aggregate hours data to compute what he calls a Labor Utilization Capacity Index (Lucy). From TCS, August 2003:

I Love LUCY

What say you, Mindles?

I swear I didn't plagiarize, but I posted almost nearly the same thing yesterday, and adjusted for the size of the workforce. You can find the post here: Investigating the Rhetoric. I guessed the cause to be somewhat different, but then again, I just play an economist on TV.

Will - its even worse than a vested interest in overstating the quality of the information. The information producers and analyzers often have a vested interest in massaging it in a particular direction. So we get data that is not only falsely-precise looking, its also distorted.

Huh? Who discredited NAIRU?
If it were true, and if welfare reform (as it was designed to do) brought it down, then we would expect to see labour income static or rising slowly (as compared with past recoveries) while unemployment rates were below levels at which such wage inflation previously occured.
We appear to be seeing exactly that. In the 70'2-90's we would have expected wage inflation at 5.5% or so unemployment. We're not. Something structural has changed. NAIRU's existence is a useful tool to eplain that.

Mindles: I was also surprised to see you say that NAIRU was discredited. It seems more reasonable to say that (1) maybe the rate's lower than we are accustomed to, and (2) maybe inflation manifests a little differently these days. I'd point to a number of deflationary pressures on labor costs (increased productivity, globalization and immigration ), not just welfare reform. Or are you saying that NAIRU has dropped so low that we can never hope to achieve it? It seems to me that the recent stock-market bubble had a NAIRU aspect, with inflation in asset prices as opposed to consumer prices.

All sniping aside, I realized today that I haven't been afraid a day in my life of terrorists, but I'm actively afraid that Bush is going to win. (Meaning, I knew I disliked the Administration, and that I believed they made a mockery of notions of accountability and meritocracy, but I didn't know I felt actual fear). I don't know if it's some remnant of a stupid relationship rule, but I assume that it will take at least as long to dig our way out of any Bush holes as the length of his total term. So for me, a Bush win means 16 years of wasted potential; put another way, it's between a quarter and fifth of my life that I think we'll be underperforming. And that just depresses me.

Sorry it's off-topic. I just read the LUCY link on the continuing output gap, and realized that (by my lights) we might be looking at this for the foreseeable future. It's just depressing as all hell.

Move to China Tim. It's the land of opportunity.

I'm appending a url to an DeLong post (quoting Angry Bear) that seems pertinent: http://www.j-bradford-delong.net/movable_type/2004-2_archives/000126.html. This seems of a piece with the Kling post that Joe Shropshire linked. Both suggest that a metric related to potential output as a function of labor capacity is better a way to measure the performance of the economy than the GDP, its growth, or the unemployment number. Both also suggest that the economy is underperforming and has been for a while (although the Kling piece is a year old). It's worth noting that Kling appears to be a slightly right-of-center economist, and DeLong a slightly left-of-center economist (I haven't followed Angry Bear enough, so I won't guess). Finally, note that Angry Bear's choice of 64% of adult civilian population as the relevant benchmark for a well-functioning employment market is based on the economy having reached that number in July of '97; this appears to be when the CES-CPS number from Wiedner's economist goes long-term positive (5 years). So Angry Bear isn't asking for employment numbers based on the potentially inflated figures that Wiedner's economist friend points out.

I guess my question is - despite the fact that unemployment is comparatively low, do you guys think that there is a lot of slack (Angry Bear says 3.5 mil. jobs) in the labor market? And if so, (a) why, and (b) what should we do about it? Is this just productivity running amuck, and does it mean we ought to strengthen training programs and beef up unemployment benefits? Or is this not a compelling argument to you?

(These labor capacity metrics seem like a good way to capture wasted potential, which is why I (and I assume Shropshire) post it here).

I think there is slack in the economy, but it's difficult to measure because standard metrics are more geared to manufacturing than to an information economy.

The proper policy response is a little hard to formulate, but my two top suggestions would be to dramatically increase minimum wage (perhaps as high as $12/hour) and to make it illegal for employers to offer health insurance.

Productivity is indeed running amok, but this isn't entirely a bad thing. Training programs haven't been terribly effective, nor are unemployment benefits more than a stopgap measure. Microgrants with minimal reporting requirements would probably be better.

I'd like to see more than speculation before thinking this produces some major error. As I understand the links, the BLS asks employers at the end of the month how many people they had on the payroll for the pay period that included the 12th of the month.

So, assuming bi-monthly pay periods, if you both quit your old job and start your new one on or before the 15th, you will be double counted. That's half of the job-changers, and only those who, being less industrious than David Walser, take no time off between jobs. If the relevant pay periods are shorter, or significant breaks are taken, then the percentage is less.

It's certainly plausible that there is more job-changing during a hot market than at other times, but isn't it also plausible that changers are more likely to use the change as an opportunity for a vacation?

It will be interesting to see what conclusions BLS comes to here, but until we have some actual data the conclusions of Weidner and his friend have to be considered pure conjecture, rather than analysis.

The atrocious economic Bubble of 1998-1999 led to a Bubble of jobs. The two dozen high-visibility crooked corporations did not cause either the jobs Bubble or the economic Bubble(because they were still a small portion of the overall economy) - - but they typified, to an extreme, such a process. In order to generate a FALSE appearance of success, these two dozen companies would have hired folks, even if not truly justified. The noncriminal businesses did so out of (for example)lack of foresight, foolishness, or outright stupidity. In any case, unjustified jobs were filled. Stupid business plans and accompanying hirings were implemented - - and that then became the BENCHMARK.

So a significant portion of these job LOSSES are in fact corrections - - changes, AWAY from what was a highly revoltin' development.

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