Arnold Kling  

Employment: A New Trough

The Real Foreclosure Scandal... Notes for a Talk...

The employment situation reported today showed a decline in nonfarm payroll employment. That means that my favorite indicator, labor capacity utilization, is at its lowest level since the recession began.

The National Bureau of Economic Research, which uses spending as a major indicator, sees the recession as having started late in 2007 and ended in June of 2009. However, if you use labor capacity utilization as the sole indicator, the economy has been sinking since April of 2006 and continues to sink, with the decline only interrupted by temporary Census Bureau hiring earlier this year.

The economy is not doing well at creating new patterns of sustainable specialization and trade. I do not think that this is President Obama's fault. I think it is the nature of the situation in which we find ourselves.

If I were giving macroeconomic advice, it would be.

1. Try a Sumnerian monetary expansion. I do not think it will do much, because I do not think that sticky nominal wages are the issue, but I could be wrong. If Sumner turns out to be right, the benefits would be large.

2. Put the foreclosures behind us, not in front of us. Get houses out of the hands of people who have not made their mortgage payments. Putting foreclosures behind us will at least give us a housing market where people can believe that prices reflect supply and demand.

3. Reform the tax system. One goal should be to reduce marginal tax rates on the business activities of hiring labor and undertaking investment. Another goal should be to separate health insurance from employment, thereby reducing a major wedge between the marginal product of low-skilled workers and the take-home pay they can receive.

4. Do as much as you can to eliminate the licensing and accreditation bottlenecks in education and health care. Develop alternative paths to make it easier for a private or charter school to achieve accreditation. Develop alternative paths by which someone can become certified to engage in health care services, such as physical therapy.

Comments and Sharing

COMMENTS (13 to date)
Colin K writes:

Over the past ten years or so, the requirements to be a PT have actually increased, with the entry-level degree becoming an MS rather than a BS. Needless to say this was a great benefit for the guild members, who regularly rank int the top tier of hardest positions for recruiters to fill.

Rebecca Burliname writes:

Healthcare and education are linked in important ways, that show potential paths in the future for education at local levels. The work that doctors and other health care practitioners do not have time for, is the work that neighborhood volunteers can do for one another. Most of us, when we reach a certain age, know at least specific areas of healthcare which when combined with the knowledge of others, can create a whole which is greater than the sum of its parts.

Ryan writes:

@Kling / Colin,

Speaking of entry-level barriers, I have a friend who just received her PT license after hurdling a $1000 entry-level barrier -- summing the test registration fees, fees for the test itself, money to prepare for the test (Study Guides and sample exams), and a handful of other fees. Sure we may need some sort of assurance, but the cost seems rather ridiculous to start work. In her opinion, the test should be solely on safety then leave it up to the quality of her work to be judge, if she works as a contractor or if she worked within a practice, then that practice could provide additional testing -- similar to those taken on job interviews.

Nathan Smith writes:

Yes, but above all:

5. Immigration reform. Grant amnesty to those who are already here, and offer more visas to all kinds of foreigners. That will reflate housing prices by increasing the pool of buyers and renters, restoring consumer confidence and the health of the financial system.

Mercer writes:

"Grant amnesty to those who are already here, and offer more visas to all kinds of foreigners. That will reflate housing prices by increasing the pool of buyers and renters, restoring consumer confidence and the health of the financial system."

Granting amnesty to the many unemployed illegal construction workers will boost housing prices? How are the illegals who earn little or no money in the current economy supposed to pay for houses? Do you propose having Fannie and Freddie loan them the money?

Granting visas to some high paid occupations like doctors would help the economy. Granting any visas to low skilled workers makes no sense when the employment market is so depressed.

Trying reflate housing prices is futile. The reason California is such a mess is because they tried to have high housing prices paid by low income workers.

Patrick L writes:

I think I like #1 the most.

"OK what should we do?"
"First, there's a chance I'm wrong, so you should do ___"

I once gave similar advice on another topic in the same manner, and no one could understand me. I ended up being right about being wrong, so it was really good advice. It was only after the fact that I was able to figure out why, but the reason was obvious once I knew for sure I was wrong.

Two Things writes:

Can't you spare any blame for Obama and Congress?

They divided Americans into two groups:

Group One = government bureaucrats, financial executives, and unionized autoworkers.

Group Two = everyone else, including all people whose marginal product exceeds their marginal wage and all businessmen who might possibly "create jobs" by finding new "sustainable patterns of investment and trade."

They transferred somewhere between 1 and 3 TRILLION dollars from Group Two to Group One.

Of course that has rather hobbled and demoralized the Group Two-- the ones who actually have to make the "recovery" happen.

What am I talking about? Almost all "stimulus" spending went to government employees-- the same sort of government employees who retire at age 50 onto monthly pension checks higher than their former paychecks(!). Fantastic sums from TARP and many other recent schemes flowed directly from taxpayers into 8 and 9-digit bonuses for Goldman-Sachs bigshots and hedge-fund guys and so-forth. $25+ billion went to feather-bedded UAW members (only-- the salaried folk got screwed) at GM.

It's no good saying that money was "borrowed." That money is mostly being exchanged for economic goods and services now. It's going into consumption (luxuries), not investment. Ultimately those goods and services are being extracted by force (through taxes and inflation) from the Group Two people who create them.

The continuation of the whole foreclosure mess can also be traced to Obama and Congress. It would be dead easy to resolve the "foreclosure crisis." The only reason it has been left to fester is that too many financial executives' bonuses depend on pretending that collateral value ("home prices") has not fallen. Remember when FASB suspended the mark-to-market rule? What a scam!

Michael Jordan writes:

I can attest to the condition of the "world outside" here that the statisticians are trying to downplay. I am what I would consider cyclically unemployed. I have been for the past year and a half. I find myself in this position at the late age of 47. Out of frustration I have started attending college to obtain a BS, but I feel that, because of the continued downward pressure of the economy, this degree is going to be worth less than it would have been worth say 20 or 30 years ago (which wasn't that much back then). I have always been able to do reasonably well by just being a hard and honest worker. This is the first time in 30 years of work history that I feel completely shut out of the market, so to speak.

The world continues to function and the economy continues to operate. There are more people in the system than at any other point in history. That means more resources are required, but more resources are available. Bottom line it appears to me that someone somewhere is skimming a HUGE cut off the top, so to speak, and leaving the "little people" to hang out and dry.

libfree writes:

An addition to #4, could we spend some time trying to stream line regulation in general? Trying to start a new business gets harder every day. Growing a midsize firm into a large firm entails a whole new set of regulatory problems.

Various writes:

I think "Two Things" has a point. I would also point out that the recently enacted Health Care Reform also involves a wealth transfer from economic net producers to net consumers. If I had to guess, and I'm only guessing, I'd ballpark HC Reform contributing about 0.1% the unemployment rate, with that number climbing over time to some higher number. HC Reform is probably already making it more expensive to hire workers, in the form of higher premiums partly attributable to mandating coverage to the dependents up to 26 years of age for the beneficiaries. There are other costs that accrue to employers, which as you know phase in between now and approximately 2015.

Now, I like Obama as a person. He seems like a wonderful golfing partner. But HC Reform was all Obama.

Jehu writes:

If you want to increase employment, and have it not cost the taxpayer (or the future taxpayer) a dime, here's a solution.
In your various legal codes and administrative rules, there are a ton of constants. That is, numbers like: This regulation applies to all employers with more than N employees or with more than X dollars a year in gross sales.
Double all those constants, and index them to demographics thereafter, with the stipulation that they can never be lowered, only raised. I bet you see a massive wave of small business hiring if you do that, as many businesses deliberately stay below the values of those constants. Doesn't cost you a dime---actually, would cost you a negative amount of money, since you don't have compliance and enforcement costs on some businesses anymore.

Douglass Holmes writes:

Arnold, are you saying the recession started BEFORE the Democrats took over Congress?
Oh no! I have to rethink my entire voting strategy.
Darn it!

WCU - Big Ric writes:

I have read this entire thread and all the comments, and I would start off by saying that this is a very interesting topic, and I think the comments and discussions are all very well thought through and well-written.

First off, I can whole-heartedly agree with #3 of the original post. Reform of the tax system is very important to getting our country out of the economic hole we are in. A decrease in taxes both on the employer and the employee would benefit the economy in this current recession. If we were to get rid of the taxes on employers they will have more to create jobs within their business, which will help the everyday worker's life situation. The more we (as in the lower and middle class) have to spend, the more this economy will reboot to what it previously was.

I was also intrigued by the #5 that was thrown out in one of the comments. I fail to see how immigration reform would do anything for employment or labor utilization. Those people who come in as illegal aliens are a part of the problem of why we are where we are. Now the only reform that I think would help would be making immigration stricter. We need to get the people that are already here working so that they can contribute to the economy. It seems that the suggested #5 would be more of a short-run solution than actually solving the problem forever.

There has also been a lot of discussion on the bail-out plan that was used to try and "help" the economy. I agree with the fact that the money used in these bail-out only helped the top-dogs and still undercut the workers. The money, I think, could have been used for a better use to make progress in the current recession. Now, I do not know all the intricacies of the bail-out plan but I do believe for the most part that it was the wrong thing to do to stimulate our economy.

In conclusion I think that solving the unemployment and labor utilization problem will start the way to get out of this recession. and please comment on this because I am here to learn and discuss. Thanks guys!

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