Job openings exceed number of unemployed

Earlier this month the Labor Department reported that there are more open positions than there are unemployed workers.  There were 6.7m openings at the end of April, well above the 6.3m unemployed.  This is the first time this has happened since the data series on job openings launched in 2000.

Although this is encouraging news for individuals looking for work, keep in mind that many employers prefer to poach talent away from someone else.  The unemployed have to compete against people who already have jobs for open positions.  Also there are many people involuntarily working part-time who are trying to gain full-time positions.  Takeaway: employers still have a large pool of position-seekers from which to draw, but the pool has gotten smaller relative to the number of open posts.

Companies with open positions will now consider changing the skill and experience requirements and increasing wages.  Consider the following example from WSJ:

To attract workers, the Saladworks restaurant chain has raised its starting wages about 5%. It also has relaxed standards on tattoos and piercings, allowed employees to wear jeans and bandannas, and gotten more flexible about schedules.

Go play your video game

Young men are becoming less and less likely to be in the labor force or in school.  How are they spending their time, compared to comparable young men a generation ago?  Apparently no small number of them are spending their extra time playing video games.

Chicago Booth economist Eric Hurst has just released his study of time allocation of jobless young men.  Men aged 21 to 30 are working 203 fewer hours than 15 years ago; men aged 31 to 55 are working 163 fewer hours.  Older men used their extra free time on TV, sleeping, eating and personal care; younger men used theirs on recreational computer time, mainly video games.  On average young men game 3.4 hours weekly.  Hidden underneath that average is a wide dispersion, with many clocking zero hours but some spending 20 or more.

There is a bit of a chicken-egg problem in interpreting the results.  One possibility is that the games are so enthralling that they become an alternative world with amenities superior to everyday existence.  In this case a job may never be seen as an attractive option.  Alternatively joblessness leads to free time and in today's age video games have transplanted other forms of idleness such as watching television or hanging out at the mall.  Perhaps it is no coincidence that some companies are using video games as part of their hiring process?

Fewer young men are working or in school. What are they doing?

Playing video games.  Seriously.  See this blog post about Booth Chicago's Erik Hurst in Marginal Revolution for details.

Apparently able to depend on parents, spouses or significant others, it is a bit hard to imagine these young men are going to be qualified for jobs or even looking for jobs anytime soon.  I am reluctantly concluding that we are getting as close to full employment as we are going to get.

The myth of the unemployed college grad

Great online NYT piece on unemployment of college grads.  Last week's jobs report put the US unemployment rate at 4.7 percent.  The NYT article leads off with a quiz that had been part of a Google survey:  The unemployment rate for high-school grads between the ages of 25 and 34 is 7.4 percent; guess the unemployment rate for college grads in the same age range!

Here are the answers they received: the average Google respondent thought the unemployment rate for college grads was 9.2%, whereas the average NYT website respondent thought it was 6.5%.  

These answers are way wrong: the actual unemployment rate for 25-34 year old college grads is 2.4 percent.  Keep in mind that this represents all college grads -- all majors, all types of schools (even the for-profits).  

So what is going on here?  One obvious lesson is that the mainstream news media have been running so many stories about unemployed college grads (usually with heavy loan obligations as well) that anecdotes have become accepted as data.  Maybe the unemployment rate for journalism majors is a lot higher than for other majors?  Maybe journalism schools don't teach their majors how to find labor statistics, so they keep writing these misleading stories.  

Will those who left the labor force ever come back?

Everyone who has been looking at labor markets over the last five years has been asking, "What is going to happen to labor force participation (LFPR)?"  We know unemployment is down to near normal levels, but LFPR remains at its lowest point in almost 40 years.  The question is important because it cuts to the heart of the issue of whether we are at or near full employment.  The unemployment numbers say yes; the LFPR numbers say no.  So what are the odds that those who have left the labor force will actually return?

Today a WSJ blog reported one relevant item of evidence, based on a sector of the economy that I have researched heavily in the past -- the construction industry.  We all know what happened to construction in 2007-08; it tanked.  That means there are a lot of former construction industry workers out there who have the skills to return.

But are they coming back?  So far the evidence is that they have found other things to do and that this has put construction contractors in a bidding war for scarce talent.  Employment is still well below 2007 levels, yet builders are having a hard time finding qualified help.  This would imply that we should take the unemployment numbers more seriously as an indicator of aggregate labor market conditions.

More job openings than ever before

The U.S. Department of Labor reports that last May there were 5.4 million open positions, more than ever before.  Although still considerably smaller than the 8.3 million who are unemployed, the ratio of open positions to unemployed persons is close to what it was before the Great Recession, according to WSJ.

This lends further weight to the argument that the job market really is beginning to tighten, despite the large drop in the size of the labor force and the number of workers who are in part-time jobs but would prefer full-time jobs.  It is a good time to be on the market!

What to make of last week's jobs report?

After months of jobs growth in the 250k range, the report for March shows a marked slowdown.  Jobs growth in March amounted to 126k and the numbers for January and February were revised downward.

Usually one bad month is not cause for alarm, but this news, combined with other recent reports of slowing economic activity, suggests that we are hitting a rough patch.  One possible reason is the stronger dollar has reduced export opportunities.

Despite recent wage increases announced by Walmart and McDonalds, wage growth continues to be slow.  This WSJ report indicates wages are growing at the top and the bottom of the distribution but not in the middle.

Race against the machines

Over the Christmas holidays I read Erik Brynjolfsson and Andrew McAfee's "The Second Machine Age," an ultimately optimistic view of where IT is taking us.  I say ultimately because as the machines get smarter and more productive, there is going to be significant displacement of labor.

Traditionally economists have viewed technological change as an essential element of economic growth.  Although there are plenty of examples of workers being displaced (ask John Henry the steel-driving man), the economy has historically been able to absorb and reallocate them fast enough to avoid mass unemployment.

Now Brynjolfsson is not so sure that mass unemployment can be avoided, as reported in a recent WSJ piece.  Although self-driving cars are years away from U.S. interstates, an Australian mining company is already using self-driving trucks and automated trains.  Some experts think that between a third and a half of today's jobs will become obsolete by mid-century.  MIT economist David Autor fears that those that will be left will be either very high skill or very low skill.

The good news -- breakthroughs in health care and education, new jobs that we cannot yet imagine, opportunities for more free time as machines do more work for us.  Maybe even folding laundry?

A first sign of wage growth

Numbers about the labor market continue to send mixed messages.  The unemployment rate is down to 5.9 percent, a level last seen in summer 2008.  In contrast the employment-population ratio dropped from 63 per cent in early 2008 to 58.5 percent by fall 2009 and has not recovered since (still at 59.0 percent).  So is the labor market back to full employment, as the unemployment data indicate, or is there still a significant excess supply of potential workers?

A key signal, many observers feel, is what will happen to wages as output expands.  If those out of the labor force are really just like the unemployed, employers will be able to fill new positions without having to raise salaries.  On the other hand, if those who have left are out for good and we really are near full employment, then salaries will need to increase.

It is too early to know which interpretation will turn out to be correct.  Last week WSJ reported rising "manufacturing wages ... in some major industrial states as shortages of certain skills ... force more companies to pay up to attract and retain workers."

However, most jobs are in the service sector.  When we hear about Walmart having trouble getting greeters and cashiers, we will know for sure that the labor market is getting near capacity.

What would happen with a $10.10 minimum wage?

Yesterday the Congressional Budget Office issued a report on what would likely happen to American labor markets if the federal minimum wage were increased from its current value of $7.25 to $10.10 by 2016.  Two conclusions have received considerable attention in the press: (1) there would be 500k fewer jobs and (2) the number of persons living in poverty would fall by 900k.

It is easy to reconcile the two results.  Some workers would get raises and there are enough workers making between $7.25 and $10.10 who will keep their jobs to offset the income loss associated with those who lose their jobs.  Interestingly CBO notes that only 19% of the wage increases will go to persons who reside in households with a living standard below the poverty line.  In contrast 30% of the wage increases will go to persons who reside in households with income three times higher (or more) than the poverty level; these would be secondary earners in such households.

The CBO analysis appears to omit to other key elements of a minimum wage increase: reduced profits of business owners (some of whom are struggling) and higher prices charged to customers.

Dealing with long term unemployment

Ran across this worthwhile piece by Bloomberg columnist Megan McArdle a couple of days ago where she discusses the question of what we should be doing to reduce the severe problem of long term unemployment.  We still have 3.6 million people who have been out of work for 6 months or more.  Should we be supporting them by extending unemployment benefits?  Or should we be creating incentives that would be creating more opportunities for them to be hired?

McArdle cites research by Alan Krueger (just returned to Princeton after two years being Obama's top economic advisor) that shows what happens to the newly unemployed.  At first they intensively search for positions.  Then once they have tapped out their network, most become passive waiting for something to come along.  Finally there is another burst of intense search as benefits run out.

Why does search effort follow this pattern?  Some might see it as a rational response to poor market opportunities; faced with a tough market, why spend tons of time beating one's head against the wall.  Others would see it as a rational response to living off the dole; this could very well be true in Europe where the ratio of benefits to lost salary income is fairly high (however, in the US benefits replace less than half of income).  Krueger found that heightened anxiety may play the most important role; rejection is unpleasant and a less intensive job search means fewer fruitless encounters with potential employers.

One idea that merits consideration, McArdle argues, is the Danish system where the long term unemployed have to accept job retraining.  Other options include tax credits to firms that hire the long term unemployed or grants to individuals who leave high unemployment regions to take jobs elsewhere.

Still lots of prime age men without jobs

Last week's WSJ has a long front page story on a trend that needs to be getting more attention: the steady decline in the percentage of 25 to 54 year old men who are jobless.  Here are the facts: in the early 1970s only 6% were jobless, a percentage that increased to 13% in 2007 just before the Great Recession.  The jobless rate peaked at 20% in 2009 and now sits at 17%.

There are a few partial explanations: more students attending graduate school, a higher incarceration rate and a larger percentage on disability (although the direction of causality on the latter is far from clear; are more people getting sick or injured or have disability claims have risen because of poor job prospects?).  Another possible culprit is declining inflation-adjusted wages.  Prime age men do not usually qualify for income maintenance programs other than disability.

So what to these idle men do all day?

Surveys find that most of the jobless spend their days in the same way working men spend their weekends -- watching TV, working out, sleeping.  

The story then goes in depth into the situations of four different men.  In each case there is a common thread: initially in a job that is a good fit with their training and experience, each experienced a layoff over the last few years and was unable to get any traction in the job market afterwards.

Thoughts on the job market

We were starting to see a lot of happy talk in the press about the economy turning the corner in 2014.  Believe me, I hope the optimists are correct.  But Friday's jobs report was a big bucket of cold water.  Employment grew in December by 74k, well below the 180 to 200k that was expected.  Employment now is still over 1m jobs below its peak level in January 2008.  The unemployment rate dropped from 7 to 6.7% but only because more people dropped out of the labor force.

As I have said before, monthly jobs data are noisy and maybe the weather threw things for a loop. Looking at 2013 as a whole, WSJ reports that average monthly job growth of 182k was basically unchanged from 2012.

WSJ also has an interesting graphic showing how employment growth has varied by sector.  The biggest job losses have been in manufacturing and construction.  Retail and wholesale trade and financial services also have fewer jobs now than they did six years ago.  One legitimate concern is whether these jobs are ever coming back.

What have the UI benefit cuts in NC done so far?

I just ran across three blog posts on what has happened to the North Carolina labor market since unemployment benefits were cut drastically in July.  One account is from the left, one from the right and one is data-focused.  (Aside: 2 of the 3 appeared in Tyler Cowen's Marginal Revolution website.)

Basic labor econ 101 says that the cuts in benefits will mean fewer unemployed persons and a smaller labor force.  Those collecting benefits must document job search efforts to continue receiving a check; if fewer people can collect checks, some of them will cut back on their search intensity and drop out of the labor force.

The impact on employment is more difficult to gauge.  One possibility is that the unemployed will become willing to work at lower wages and this would lead to faster transitions from joblessness to employment.  On the other hand, net income from a low wage job might not be all that much higher than the income generated from income maintenance programs and informal market activity, so there may be no change in employment.

I took a quick look at the data for NC from the US Bureau of Labor Statistics.  So far (June versus November) employment is unchanged, the number of unemployed is down by 18 percent, and the labor force has shrunk by 1 percent.  The unemployment rate is down from 8.8 to 7.4 percent, but it entirely reflects unemployed people dropping out of the labor force.  The good news is that there are fewer unemployed; the bad news is that they are not employed and have lower incomes.

More evidence of a rotten recovery: "missing households"

I learned about a new economic statistic in yesterday's WSJ: missing households.  Young people make choices about living arrangements, whether to be on their own, have a roommate, or continue to live with their parents or other relatives.  One can calculate how many households we would have if every person or family lived in their own housing unit.  Compare this to the actual number of households and you get an estimate of the number of missing households.

As the economy started to go downhill in 2008, there were 900k missing households.  By 2011 the number peaked at 2.6m.  It is now down slightly to 2.4m.  Most of those in missing households are between the ages of 18 and 34. 

One does not have to do a lot of fancy economic modelling to infer that a good chunk of these 2.4m people are not staying in their parents' house by choice.  This is a further reflection of the truly difficult labor market that we face today.  It also suggests that we are not going to have a serious recovery in housing until the labor market gets better. 

Unemployed > 6 months and out of luck

Recently two Northeastern University economists (Rand Ghayad and William Dickens) sent out 4800 fictitious resumes to companies in 50 metropolitan areas.  The resumes varied in two important respects: whether the applicant had industry experience and how long the applicant had been out of work.  It was not much of a surprise that those with experience in the same industry had greater odds of being contacted than those with experience in a different industry. 

The key result related to time unemployed: applicants who had been out of work more than 6 months had virtually no chance of being called for an interview.  The long term unemployed represent about 38 percent of the total unemployment pool, which makes this a significant social problem. 

Why do employers lack interest in the long term unemployed?  Some economists think employers are using long term unemployment a signal of the applicant's capability; in other words, if you were any good, somebody else would have hired you by now.  Others think it is simple prejudice and argue that such discrimination should be illegal (the President's American Jobs Act included such a provision but it was not approved by Congress).  For more information see this article from Bloomberg Businessweek and this press release from Northeastern. 

Tough choices in NC on unemployment insurance

Today's N&O runs two stories on the unemployment insurance system in NC, one focusing on an unemployed Durham worker and the other looking at a small Raleigh firm.  The system is broken, with a negative balance owed to the federal government of $2.5 billion (to cover benefits paid to NC residents that could not be covered by UI payroll taxes), the largest of any state.  Assuming the feds insist on being paid back, some painful adjustments will be necessary.

Unemployment benefits are mostly funded by a state tax levied on employers.  In normal times, the tax paid by a firm will be sufficient to cover the benefits received by its employees.  Taxes are levied on the first $20,900 earned by each employee; the rate in NC can be as low as zero (for someone who has been open two years or more and never had an employee claim benefits) to as high as 6.84%.  The federal government also administers a tax of 1.2% on the first $7,000 earned by each employee.

The NC General Assembly is likely to cut benefits and raise taxes later this year.  Maximum weekly benefits are likely to be cut from $535 to $350 and eligibility for benefits is proposed to be cut from 26 weeks to a range of 12 to 20 weeks.  There is a proposal to increase the employer tax by 0.06%, which amounts to no more than $12 per employee.  Of course, even though this tax is not withheld from wages and salaries, employees end up paying most of this tax because it gets shifted back to them via lower wages or salaries. 
 
The economics of unemployment insurance are straightforward: we face a tough tradeoff between compassion and incentives to get back to work.  Higher benefits over a longer period have been shown, time after time, to lead to higher unemployment rates; more generous benefits reduce the incentive to search for a job.  However, the system was designed to be a form of social insurance to provide a buffer against unemployment risk.  If skilled workers end up taking minimum wage jobs out of desperation, the incentives for finding a job fast run counter to maintaining incentives to invest in skills and education.  (Aside: I always have wondered why we do not insist on school or training for workers collecting benefits more than six months so they can get an extra boost toward employability.) 

Higher employer taxes spread the pain of adjustment across all employees and businesses.  Cuts in benefits and their duration focus the pain on those who become unemployed after July 1.  My take: right now the bill is being shifted to those who can least afford it; employer taxes should be raised more and benefits be reduced less. 

Today's jobs news

The September jobs report came out this morning.  Press accounts are trumpeting the drop in unemployment from 8.1 to 7.8 percent.  This number comes from the Current Population Survey, which examines 50k plus households each month.  According to the CPS, employment rose by 873k and unemployed persons dropped by 456k from August to September.  On net this implies that 417k persons who were not even in the labor force in August found jobs in September, which strikes me as implausible.  Lay persons should keep in mind that it is hard to extrapolate from 50k households to a labor force of 155 million.  Another sign of unusual volatility in the numbers: CPS data show declines in employment in July (-200k) and August (-100k) which probably were overly pessimistic, thereby making part of the big jobs gain in September a statistical correction.  

On a month to month basis, the monthly survey of establishments is a more reliable indicator of employment trends.  It shows a slow but steady increase in jobs of 100 to 180k each month over this period.  My take: the jobs recovery remains painfully slow but at least it is moving in the right direction.  Make whatever political hay you want out of that comment!

Employer bias against the long-term unemployed?

Learned today about an NBER study done by three economists (one at Chicago Booth) on how employers react to job applications from the unemployed.  The researchers sent out identical resumes to employers with online postings in 100 cities that varied only on one critical dimension: number of months since the applicant's last job, which randomly varied between 1 and 36.  The key result: the odds of getting a callback dropped with the amount of time unemployed.  Persons reporting 8 months of joblessness had a 45% lower probability of getting a call than those reporting 1 month.  After 8 months, additional time unemployed had no effect on the odds of getting a call. 

The study took a more careful look at how local labor market conditions influenced the results.  They found that the relationship between months unemployed and callback odds was strongest in cities with tight labor markets (relatively more vacancies and low unemployment).  In cities with few vacancies and high unemployment, there was no strong relationship between months unemployed and callback odds.

These results indicate that employers use time out of work as a signal of productivity and motivation.  In tight labor markets, employers seem to think something must be wrong with the applicant if they have been out of work 6 months or more; in contrast, time unemployed does not seem to be an issue in areas where there are very few jobs.  The lesson: holding out for better job offers can be a self-defeating strategy. 

This does not look good

Today's jobs report for May is a total disaster.  WSJ reports that employment grew by a mere 69k and unemployment inched up to 8.2%.  Stock market dropped 2.5% in reaction to this and the even worse news coming out of Europe.  Ouch!