Man Without Qualities

Saturday, October 25, 2003

And Now, A Word From The Bureau of Labor Statistics

Paul Krugman: Bear in mind that the payroll employment figure right now is down 2.6 million compared with what it was when George W. Bush took office. So Mr. Snow is predicting that his boss will be the first occupant of the White House since Herbert Hoover to end a term with fewer jobs available than when he started.

Is this even factually correct? And does Herr Doktorprofessor fail to include other facts whose inclusion is necessary to make the facts that are included not materially misleading? Herr Doktorprofessor fails to note the divergence between the two measures of unemployment (payroll and household) - and focuses exclusively on "payroll employment" as if the United States had yet to discover independent contracting and the like. The omission is all the more misleading because there is increasing evidence that the shift away from "payroll employment" is largely attributable to soaring costs of government imposed employee benefits, employment regulations and mandatory and quasi-mandatory government programs (such as workers comp). Under the second measure of employment (households), there has been no loss of employment under Bush - and there will almost certainly be a substantial increase in employment by this measure by the end of the president's first term. This divergence in the two measures has been discussed elsewhere.

[Possible evidence that employers find old-fashioned payroll employees to be just too expensive, so employers are using more machines in place of employees and using more independent contractors who can be paid more flexibly than employees: Hourly wages have already surprised most economists by growing more quickly than inflation since 2001 in spite of the worst decline in employment in 20 years.

If the "household" measure of employment is correct, and there has not been a decline in real employment in the United States over the past few years, one would not expect downward pressure on wages. Mandatory or quasi-mandatory government imposed costs on employee hires may also be causing employers to disfavor employee hiring in favor of technology - resulting in the remaining employees becoming highly productive, perhaps inefficiently highly productive (as is seen in much of Europe, especially Germany). That would be consistent with the recently observed acceleration in American worker productivity. It is interesting that much new third-world manufacturing (especially in China) substitutes human labor for machines relative to the US. That is, processes performed by machine in the US are performed by Chinese human labor when the manufactring is "moved" from the US to China.

Maybe the belief that we have suffered the worst decline in employment in 20 years based on "payroll employment" just isn't right, and one needs to look at the "households" indicator of employment and finer measures of employee productivity to get a better picture.]

Total non-farm employment data does show that since the end of the Depression every president's term has ended with "more jobs" than it began. But, as a preliminary matter, why focus on the absolute number of jobs? Doesn't one traditionally look at the unemployment rate for historical comparisons and political effect? (While in my opinion Herr Doktorprofessor's entire approach of looking at whether a president ends a term with "more jobs" than he began is not serious economics or political theory, I note that some people believe that the average unemployment rate for 1937, the first year of FDR's second term, was greater than the unemployment rate for 1941, the last year of that term.) For example, the recent attempt by Democrats and Herr Doktorprofessor to make California voters focus on the total number of jobs created under Gray Davis' administration was not exactly effective.

Consider Dwight D. Eisenhower: Thirty-Fourth President 1953-1961 and this data:

Bureau of Labor Statistics:
Series Id: LNS14000000Seasonal Adjusted
Series title: (Seas) Unemployment Rate
Labor force status: Unemployment rate
Type of data: PercentAge: 16 years and over

Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Annual
1952 3.2 3.1 2.9 2.9 3.0 3.0 3.2 3.4 3.1 3.0 2.8 2.7
1953 2.9 2.6 2.6 2.7 2.5 2.5 2.6 2.7 2.9 3.1 3.5 4.5
1954 4.9 5.2 5.7 5.9 5.9 5.6 5.8 6.0 6.1 5.7 5.3 5.0
1955 4.9 4.7 4.6 4.7 4.3 4.2 4.0 4.2 4.1 4.3 4.2 4.2
1956 4.0 3.9 4.2 4.0 4.3 4.3 4.4 4.1 3.9 3.9 4.3 4.2
1957 4.2 3.9 3.7 3.9 4.1 4.3 4.2 4.1 4.4 4.5 5.1 5.2
1958 5.8 6.4 6.7 7.4 7.4 7.3 7.5 7.4 7.1 6.7 6.2 6.2
1959 6.0 5.9 5.6 5.2 5.1 5.0 5.1 5.2 5.5 5.7 5.8 5.3
1960 5.2 4.8 5.4 5.2 5.1 5.4 5.5 5.6 5.5 6.1 6.1 6.6
1961 6.6 6.9 6.9 7.0 7.1 6.9 7.0 6.6 6.7 6.5 6.1 6.0

It might be objected that Herr Doktorprofessor is discussing total jobs - not the unemployment rate, and that's that. He's entitled to discuss what he wants to discuss. But, then, what to make of odd comments like this from his column: And to have kept up with the population growth since Mr. Bush took office, the economy would have to add not two million, but seven million jobs by next November. What does keeping up with the population growth mean outside of the unemployment rate?

And consider this Eisenhower-era data:

Table B-1. Employees on nonfarm payrolls by industry sector
and selected industry detail (in thousands)

Series Id: CEU0500000001
Not Seasonally Adjusted
Super Sector: Total privateIndustry: Total private

1952 41064 41109 41222 41557 41614 41637 41441 42574 43146 43312 43495 44008 42182
1953 42667 42736 43054 43266 43457 43877 43873 44098 44168 44008 43664 43757 43552
1954 42002 41752 41691 41956 41837 42177 42047 42305 42540 42581 42742 43187 42235
1955 41824 41829 42304 42835 43231 43939 44039 44476 44758 44873 45054 45507 43722
1956 44092 44030 44250 44590 44845 45414 44671 45596 45715 45855 45820 46169 45087
1957 44554 44483 44632 44976 45152 45600 45528 45830 45817 45605 45323 45320 45235
1958 43532 42732 42534 42568 42779 43277 43291 43736 44152 44060 44408 44689 43480
1959 43613 43497 43919 44591 45202 45903 45927 45746 45868 45674 45800 46441 45182
1960 45135 45060 44932 45711 45889 46344 46241 46446 46435 46214 45870 45702 45832
1961 44208 43785 44037 44464 44994 45771 45846 46221 46304 46283 46333 46542 45399

Series Id: CES0500000001
Seasonally Adjusted
Super Sector: Total privateIndustry: Total private

1953 43351 43542 43690 43662 43774 43788 43813 43733 43616 43478 43157 42959
1954 42707 42598 42362 42371 42136 42050 41966 41933 41987 42044 42215 42374
1955 42544 42721 43025 43287 43521 43770 43936 44089 44195 44313 44509 44673
1956 44808 44955 45043 45099 45139 45216 44549 45181 45119 45262 45269 45346
1957 45268 45452 45484 45537 45436 45364 45368 45371 45183 44997 44788 44539
1958 44256 43744 43452 43158 43019 42986 43065 43221 43490 43454 43915 43988
1959 44376 44571 44884 45178 45396 45535 45630 45156 45189 45094 45351 45807
1960 45967 46187 45933 46278 46040 45915 45861 45800 45734 45642 45446 45146
1961 45119 44969 45051 44997 45119 45289 45400 45535 45591 45716 45931 46035

The charts above show private sector employment. Herr Doktorprofessor Krugman doesn't indicate what measure he is using to determine his "payroll employment" figure. But he appears to include at least public civilian employment. The nation's bloated public sector is a symptom of the economic problem the nation and many localities face - including California. For example, here in California, there is widely understood a need to substantially reduce the size of public sector employment - and the Democratic controlled legislature has already authorized some such cuts.

Is Herr Doktorprofessor saying that the United States needs more government employees and a larger public sector - or that George Bush would have had a more successful term if more public employees had been hired since he took office? Both federal government and general public sector employment has grown during the Bush years. Does Herr Doktorprofessor want even more? That's not what the Democratic National Committee and Al Gore seem to think - they're all for reinventing and downsizing at least federal government:

To help create a federal government that works better and costs less, Vice President Gore headed the National Partnership for Reinventing Government. The initiative has ... reduced the size of the federal government to its smallest level since President John F. Kennedy's Administration.

The threat posed by the endless growth of the public sector to the United States economy was in it's infancy when the Depression began. The beast is now grown up and fearsome. Rhetorical tricks like Herr Doktorprofessor's obscure that particular difference, and many more. He would likely characterize such use of statistics as 'lying" if, for example, the Bush Treasury Department were to do it. Is Herr Doktorprofessor suggesting a new WPA program - or federal subsidies for new hiring? He does suggest: [T]he Bush tax cuts will account for almost $300 billion of a deficit expected to top $500 billion. (If that $300 billion had been used to employ workers directly - a new W.P.A., anyone? - it would have created six million jobs.) Putting his comment in parentheses suggests that it's a kind of joke or ironic observation - in any event, something for which Herr Doktorprofessor doesn't want to take full responsibility. But Herr Doktorprofessor's historical focus on total (not private sector) employment is no joke, since today's bloated public sector is a big burden on the economy.

Even Wesley Clark's $100 Billion employment plan tries hard to avoid direct public sector hires. It is curious that Herr Doktorprofessor has not seen fit to criticize, or even discuss publicly, the highly questionable Clark approach. For example, do we really want the government subsidizing new private sector hires with tax benefits? Is that an effective way to meet global competition?

And where in this column is there any mention of the particular nature of the drag on the economy caused by the over investment in capital goods that occurred during the Clinton administration - other than this pearl:

I know, I know, the usual suspects will roll out the usual explanations. It is, of course, Bill Clinton's fault. (Just for the record, the average rate of job creation during the whole of the Clinton administration was about 225,000 jobs a month. Mr. Clinton presided over the creation of 11 million jobs during each of his two terms.) ... But surely there must be a statute of limitations on these excuses.

Mr. Clinton did not create the over investment in capital goods of the late 1990's any more than his policies caused the recovery of the early 1990's. But it is widely and probably correctly believed that many jobs that would now exist in the capital goods sector don't exist because of that overinvestment binge of the late 1990's. In this sense, many of the jobs of the late Clinton era were pretty clearly "borrowed" from the early 21st Century. That doesn't explain all of the current job situation, but it is fairly clear that too much was invested in the late 1990's (resulting in low unemployment then) - which is causing a drag on employment now. The "statute of limitations" on that effect to a good economist not fixated on making a partisan argument will be exactly as long as it takes for the economy to work through the over investment - which takes a good while. (On a lighter note, perhaps Herr Doktorprofessor can enlighten us all as to the exact moment FDR ceased blaming everything wrong with the American economy on Herbert Hoover. That is: When did that "statute of limitations" expire?)

Herr Doktorprofessor's entire column seems an exercise in liberal economics nostalgia, pining for a day when almost everyone was a payroll employee, when employee benefit costs were minor compared to salaries, when few had to worry about capital investment binge hangovers. In short, he pines for a day when liberal New York Times columnists could make misleading political arguments tricked up as economic analysis that would be endorsed by intellectually dishonest economic academics - and not have to worry too much about being called out on it too sharply:

A very nice column indeed ... But I do have one complaint. Asking that Bush leave "the job market no worse than he found it" is setting the bar too high by perhaps 2 million jobs

But those days are gone.

UPDATE: For one thing, more intellectually honest economists like Steve Antler and Jim Glass pipe up when a columnist ("economist?") goes as far off the rails as Herr Doktorprofessor does here.

FURTHER UPDATE: Herr Doktorprofessor should be feeling more pressure to justify his constant pessimism, since more and more people see ... economy - now described by even some experts as sizzling - is finally creating jobs faster than they are lost.

Economists expect that evidence of this change will start to show up over the coming months as up to 150,000 new jobs are created each month. Hiring appears to be happening across the board: from airlines who are recalling laid-off workers to manufacturers who can no longer meet orders simply by turning on new machines. Even Silicon Valley has "help wanted" signs.

"All signs are pointing to more jobs," says Sung Won Sohn, chief economist at Wells Fargo Banks in Minneapolis. "We are at the point where companies need more people to meet the increase in demand in their businesses."

This shift has important economic ramifications. More jobs will keep consumers spending instead of worrying about layoffs. It will also give businesses confidence that the long-anticipated economic recovery has some depth to it. And it comes at a time when the economy needs help sustaining the stimulative effect of both tax cuts and lower interest rates, which has been waning.

"A resumption of job gains more than adequately fills the gap," says Richard DeKaser, chief economist at National City Corp. in Cleveland. "When you have income realized through work, about 98 percent of it is out the door as soon as it's earned."

The hiring spurt could also have important political ramifications, particularly as the 2004 presidential race nears. A better employment picture could relieve some of the criticism directed at the Bush administration, and it could make Democrats rethink their campaign strategy.

But while the economy will be creating new jobs, economists warn that the improvement won't show up initially in the widely watched unemployment rate. In fact, the rate - currently at 6.1 percent - might rise over the coming months as discouraged workers start looking for work again. "The rise in the unemployment rate is actually a good sign in the early stages of a recovery," says Mr. Sohn. "The rate shouldn't start dropping in earnest until 2004."

Of course, if all these good things really happen in force, we can expect Herr Doktorprofessor to drop his emphasis on absolute job creation and refocus on the unemployment rate.

But such a tactical shift probably won't make any difference. The current unemployment rate - with or without discouraged workers added into the mix - is just not very high for political purposes, and will probably not have more than marginal negative effects.


The bond market's buoyant performance this week would leave it vulnerable to any upside surprise in the advance estimate of third-quarter GDP (gross domestic product). The market expects that report, due on Thursday, to show that the economy grew a fast-paced 6.0 percent to 6.5 percent.

The advance GDP estimate, due on Thursday, always has the potential to shock the market, said William Sullivan, senior economist and executive director at Morgan Stanley.

Seven percent GDP growth or higher for the third quarter would be "a distinct negative" for bonds, Sullivan said, while third-quarter GDP around 5 would be positive for Treasuries.

A 7 percent third-quarter growth rate generated in part by strong investment spending would be particularly negative for Treasuries, economists said.

"It would suggest that we are now on a path of stronger growth than we had before," said Moran.

Until the job market begins to replenish some of the approximately 3 million jobs lost in the past three years, the Fed is unlikely to tinker with interest rates and jeopardize the recovery. For that reason, traders will pay attention to the weekly jobless claims numbers due on Thursday.

If the third-quarter numbers come in north of 6.5%, the official Man Without Qualities advance estimate of fourth-quarter HDP (Herr Doktorprofessor) trends is a distinct falling off in the number of HDP columns arguing that unemployment and a "jobless recovery" will be the big problems for the President's re-election, and a growing dominance of HDP clarion calls that the "collapse of the bond markets" will do him in - notwithstanding the employment growth previously considered all-important by a handful of economists.

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