Man Without Qualities

Sunday, September 07, 2003

More Jobs Than We Thought?

Mickey Kaus does a terrific job of taking Louis Uchitelle's to task for Uchitelle's NYT report on the disappointing August job figures, which includes this questionable spin job:

93,000 jobs were lost in August, countering expectations that employment would finally begin to expand. ... The unemployment rate declined to 6.1 percent from 6.2 percent in July, but economists said that was apparently because of a surge in the number of people who, having lost jobs, listed themselves as self-employed rather than unemployed.

In other words, the drop from 6.2% to 6.1% was not primarily caused by an increase in discouraged workers but by an increase in the number of people who consider themselves to be self-employed workers. Kausfiles correctly points out the decision to second guess such people's characterization of themselves as "self employed" and instead conclude that most of them are really "unemployed" is questionable spin.

Kausfiles' approach is strongly supported by the current status of the recovery. As noted in a previous post (and in common economic knowledge), employers experiencing an increased need for labor often do not hire permanent employees right away. Rather, they first try to make current employees work harder or more, and try to fill positions with temporary help to the extent possible. Both of those trends are now strongly evident in the economy.

Yet another way for an employer to obtain labor without hiring a permanent employee is to hire more independent contractors. The extent to which that approach is feasible will depend on the type of work desired. It is unlikely that an assembly-line worker can be an independent contractor - but if an employer were to require, say, some computer software engineering services, what better place to obtain them than to hire a former employee on a contract basis? If one's former employer or another software company knocked on your door to sign you up as a contract worker (which Microsoft, by way of example only, often does - sometimes at the cost of legal complexities) - would you be mistaken or deluded to refer to yourself as "self employed" after signing the contract and starting work on the project?

A substantial increase in the number of self-employed people is just what one expects to see at this stage of the recovery - for many of the same reasons that employee productivity and temporary employees are now increasing smartly.

For that matter, are all those independent writers and reporters who provide content for the Times and other media - such as Virginia Postrel - really just "unemployed?" And where do I sign up to be so "unemployed?"

A related point: Where an employer needs sevices normally provided by humans, the employer might in some cases also acquire technology to substitute for human workers - fully or partially. If labor laws are rigid, employers may have an incentive to acquire too much technology in the sense that employers may acquire more technology and less human work than the society-wide wealth-maximizing mix. In that case, per-worker output will be higher than the efficient (that is, the society-wide wealth-maximizing) mix would dictate. Unemployment will also be too high. That is: rigid labor laws encourage an inefficiently high level of worker efficiency. The classic example is current Eurosclerosis - where very high German (say) worker efficiency combines with high society-wide unemployment. Given the remarkably high productivity increases recently observed, it would be interesting to see if such increases are partially a sign of creeping Eurosclerosis in the American economy - with health insurance costs as a main focus.

UPDATE: John Fund points out:

The worst idea before the [California] Legislature is Senate Bill 2, written by John Burton of San Francisco, the liberal president of the state Senate. It would compel businesses with more than 20 workers to pay almost all health insurance costs for employees--even part-time workers--and their dependents. Companies would have to pay at least 95% of health-care costs for low-income workers, and 80% for everyone else.

Jill Stewart, a columnist and former Los Angeles Times reporter, describes the measure as "closer to socialism than anything I've seen heading for approval in 20 years." This bill would create a powerful incentive businesses to stay below the 20-employee limit by stunting their own growth, or drop below the limit by laying off workers. Ms. Stewart reports the bill was ghostwritten by the Service Employees International Union, a major Democratic contributor.

FURTHER UPDATE: Don Luskin has noted that the California Chamber of Commerce cites worker's comp reform as the number one business issue in the state.

The system is obviously in crisis and is widely believed to be driving business from California. However, there are other states with such systems that are also out of control.

Irrationally high workers' comp costs will, of course, drive business out. But, to the extent businesses remain, the workers' comp system creates an incentive towards Eurosclerosis (call it Calisclerosis?). A machine or software is not subject to claiming disability from carpal tunnel syndrome, and doesn't visit chiropractors: The typical injured California worker sees a chiropractor 34 times, compared with an average of 16 times in 12 other states studied by the Workers' Compensation Research Institute. Of the $1.2 billion expected to be spent on chiropractic treatment for 2004 injuries, $600 million could be saved by capping visits, according to the nonprofit Workers' Compensation Insurance Rating Bureau.

Calisclerosis is only one possible incentive towards inefficient overuse of technology. Such arguments and considerations do not, of course, prove that Calisclerosis is happening. But some economists are giving the job-growth-productivity links a hard rethinking. Possible Calisclerosis should be part of what is reexamined, along with the happier prospect that the nation's productivity potential is higher than has been believed.

STILL MORE: An astute friend e-mails:

Here’s another angle on the jobs spin. The Dept of Labor’s Bureau of Labor Statistics conducts two entirely different job surveys, one of business establishments and one of households. For some reason the former is always quoted for job creation statistics (payroll), and the latter is always quoted for “the unemployment rate.” The two are diverging incredibly. [This chart shows what is happening.] Since year-end 2000, the former is showing the famous millions of jobs lost. But the latter shows a complete job recovery – a perfect breakeven (just a slight gain, actually). Year to date, the former shows over 300,000 jobs lost, the latter 1.2 million jobs gained. There are many differences between the two. The latter includes self-employed.

This press release from the Senate Joint Economic Committee discusses the matter:

Senator Bob Bennett (R-UT), chairman of the Joint Economic Committee (JEC), held a hearing today to discuss the August employment numbers with Commissioner of the Bureau of Labor Statistics (BLS) Kathleen Utgoff. Bennett discussed the state of the current economy and asked the commissioner about a seemingly significant discrepancy in the employment numbers.

“Though not widely known, employment figures come from two different surveys,” said Chairman Bennett. “The BLS surveys individual households to determine the unemployment rate, while it asks businesses about the number of people on their payrolls to determine how many jobs have been gained or lost. Congress relies on these statistics to make policy decisions, and we need to be sure we are acting on the most accurate and complete statistics available.”

According to the household survey, the number of employed people has increased by 1.4 million since the end of the recession.

The payroll survey, in contrast, indicates that roughly 1.1 million jobs have been lost over that period. Some of the disparity may reflect methodological differences between the two surveys, or it may be telling us of fundamental changes in our economy.

A significant difference between the two surveys is that the household survey accounts for those who are self employed and for small emerging businesses that may be overlooked by the payroll survey.

The full statement is here. This chart compares unemployment with other recessions.

It is by no means clear that the media coverage of the current national employment situation is coherent or correct.

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