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  • The Link Between Home Ownership Rates and Rising Unemployment

    The jobless recovery has us looking everywhere for the culprits--the factors that exacerbate unemployment. But we have not spent a lot of time connecting home ownership and unemployment. University of Warwick's Andrew Oswald and Dartmouth's David Blanchflower say they have evidence "that the high rate of home ownership in the western world may be an important reason for the high unemployment that we all see around us." In a new paper they share data from U.S. states and linkages between increased home ownership rates and lost jobs. Oswald provides a summary of their findings at Vox : Famously, Switzerland has 3% unemployment and 30% home ownership, while Spain has 25% unemployment and 80% home ownership. Simple correlations of this kind do not count as (remotely) persuasive causal evidence. They are open to the objection, in particular, that they do not difference out country fixed effects. So, in our paper we take many decades of data from US states, which as a federally organised nation state, offers a useful spatial mini-laboratory for econometric work on unemployment rates, and we then estimate state panel unemployment equations. We adjust for state fixed effects, for year dummies, and for the demographic and educational composition of the people who live in the different states. When this is done, we find that the lagged home-ownership rate acts as a strong predictor of the unemployment rate. The size of the estimated effect is startling: A doubling of home ownership is associated with more than a doubling of the long-run unemployment rate. As a check, we show that this result is holds up against splitting the data set into different sub-periods and into different areas (such as North and South) within the US. We also show that the patterns are – very probably – not because home owners themselves are disproportionately unemployed. Our work chimes with forthcoming recent research by Jani-Petri Laamanen, who studies a natural experiment in Finland (2013). Read High home ownership as a driver of high unemployment here .

  • Janet Yellen's Cautious Optimism the Unemployment Will Continue to Trend Down

    In a speech yesterday to the Money Marketeers of New York University , Federal Reserve Vice-Chair Janet Yellen said she did not see the current high unemployment in the U.S. as structural, but rather cyclical with a threat of becoming structural. And she points to the "slack in the labor market"--shown in the figure below--as a sign that moderate growth will be coming and will then lower unemployment. Yellen: Putting all the evidence together, I see no good reason to doubt that our nation's high unemployment rate indicates a substantial degree of slack in the labor market. Moreover, while I recognize the significant uncertainty surrounding such forecasts, I anticipate that growth in real gross domestic product (GDP) will be sufficient to lower unemployment only gradually from this point forward, in part because substantial headwinds continue to restrain the recovery. One headwind comes from the housing sector, which has typically been a driver of business cycle recoveries. We have seen some improvement recently, but demand for housing is likely to pick up only gradually given still-elevated unemployment, uncertainties over the direction of house prices, and mortgage credit availability that seems likely to remain very restricted for all but the most creditworthy buyers. When housing demand does pick up more noticeably, the huge overhang of both unoccupied dwellings and homes in the foreclosure pipeline will likely allow demand to be met for a time without a sizable expansion in homebuilding. A second headwind comes from fiscal policy. State and local governments continue to face extremely tight budget situations in light of the weak economy, depressed home prices, and the phasing out of federal stimulus grants, though overall tax revenues have been improving and that should continue as the economy expands further. At the federal level, stimulus-related policies are scheduled to wind down, while both real defense and nondefense purchases are expected to decline over the next several years under the spending caps put in place last year. A third factor weighing on the outlook is the sluggish pace of economic growth abroad. Strains in global financial markets have eased somewhat since late last year, an improvement that reflects in part policy actions taken by European authorities. Nonetheless, risk premiums on sovereign debt and other securities are still elevated in many European countries, while European banks continue to face pressure to shrink their balance sheets, and concerns about the outlook for the region remain. A further slowdown in economic activity in Europe and in other foreign economies would inhibit U.S. export growth. Read the full speech here .

  • Menzie Chinn on 'Unexpectedly fast net job creation'

    There seems to be fairly wide agreement that we have been witnessing a jobless recovery in the U.S. So it comes as a bit of a surprise to learn, as Menzie Chinn points out at Econbrowser , that private employment growth is outpacing GDP. Chinn shows the growth rate of private employment against GDP in this figure: Chinn: Notice that from 2008Q4 onward, employment growth was below the regression line (i.e., employment was underpredicted), and continued on into the recovery period. The most recent observations have indeed been above the regression line. But there does seem to be a consistent pattern wherein contractions are associated with employment growth below that implied by the relationship that obtains over both upswings and downswings. This suggests to me that we don’t want to look at static relationships (levels on contemporaneous levels, or growth rates on contemporaneous growth rates), but rather dynamic ones. And perhaps ones that allow for different behavior in contractions (after all, GDP business cycles are not symmetric – contractions are shorter than expansion). Read Okun’s Law, the Jobless Recovery, and Unexpectedly Fast Net Job Creation here .

  • SF Fed's 'Economic In Person' Series: The Great Recession and Unemployment

    One key legacy of the Great Recession will be the damage it caused to the labor market, says Mary Daly . That damage is deep and wide. And it only just begins to show up in the stats discussed in the media. In the first installment of a new series from the Federal Reserve Bank of San Francisco , Daly--Associate Director of Research and Group Vice President at the bank--discusses four distinguishing characteristics of the recession and its impact on unemployment. frbsf on livestream.com. Broadcast Live Free

  • Job Seekers to Available Jobs Ratio

    December has brought a small wave of positive news on the unemployment front--though much of it is better described as "less negative news." Lest we get carried away by dips in the unemployment rate and jobless claims, Economic Policy Institute economist Heidi Shierholz reminds us that the conditions are not ripe for a major shift. Shierholz points to the ratio of job seekers to available jobs, which remains above 4:1. Shierholz: To put this figure in context, it’s useful to note that the highest this ratio ever got in the early 2000s downturn was 2.8-to-1, and in December 2000, the month the JOLTS survey began, the ratio was 1.1-to-1. While the job-seekers ratio has been generally slowly improving since its peak of 6.9-to-1 in the summer of 2009, today’s data release marks two years and 10 months—147 weeks—that the ratio has been above 4-to-1. A job-seekers ratio of more than 4-to-1 means that for more than three out of four unemployed workers, there simply are no jobs. In October, there were 10.6 million more unemployed workers than job openings. Furthermore, the lack of job openings relative to unemployed workers is in no way limited to particular industries such as construction—unemployed workers dramatically outnumber job openings across the board, in every major industry. Read the full post here .

  • Brookings Experts on What They Think Obama Shoud Push for in Speech on Jobs

    Ahead of President Obama's highly anticipated policy speech on jobs, the Brookings Institution held a roundtable conversation on possible policy measures the Obama administration might make in order to improve the bleak economic picture. Michael Mussa , senior fellow at the Peterson Institute for International Economics , made the case for infrastructure spending. Mussa argued that passing the highway bill is among the most expedient, and least controversial paths to increasing public hiring: You can watch other excerpts from the discussion here , and read a full transcript here .

  • NY Fed: Temporary Joblessness and Recessions

    We have news coming out of the Department of Labor this morning that jobless claims dropped again last week . This is good news, but while the unemployment rate is declining, it is doing so at a very slow pace. This is somewhat different from some past recoveries. And Erica Groshen , a VP at the Federal Reserve Bank of New York , points out one possible factor: temporary unemployment. Take a look at the percentage of overall job losses that temporary unemployment made up for recessions from 1973-1981compared to the Great Recession (as shared by Groshen on the New York Fed's Liberty Street Economics blog): Groshen writes: During the last three downturns, temporary layoffs clearly played a much smaller role in the total rise in joblessness. I show three different bars because the beginnings and ends of recessions can be dated in different ways: official National Bureau of Economic Research (NBER) dates, unemployment rate peaks and troughs, and temporary layoff troughs close to unemployment rate troughs. Any way you measure it, temporary layoffs accounted for much less of the peak-to-trough increase in joblessness during the 2007 recession than they did in downturns before 1990. In our Current Issues article on the 2001 recession, Simon Potter and I offer two explanations for the switch away from temporary layoffs. The first focuses on modern personnel practices, such as lean staffing. Here, firms use recessions as opportunities to cull their workforces, close inefficient facilities, or make other fundamental changes. Rather than just “weathering the storm,” they try to emerge stronger. The second explanation notes that shallow, short recessions may have less cyclical “collateral damage.” That is, the impact of a mild recession may be highly concentrated in firms and industries that need to change, with little impact on fundamentally healthy firms or industries. If healthy employers prefer temporary layoffs (because they want their workers back when conditions improve), then a mild, short recession would lead to proportionally fewer temporary layoffs. In the 2001 recession, the new personnel practices were prevalent, but the downturn was not deep or long. So, in our article, we couldn’t tell which explanation was correct. However, the fact that the severe Great Recession did not cause a big spike in temporary layoffs suggests that new behavior patterns of employers are likely to be an important explanation. Read Temporary Layoffs during the Great Recession here .

  • Mark Thoma: Two Forecasts on Employment Recovery

    Unemployment dropped below 9% in Feburary, but it appears we will wait a long time before it gets down to 4%. Mark Thoma has two projections for how long it will take for the US to return to "full employment." Here's the optimisitc forecast, based on employment recovery following recessions since 1948: Here's the pessimistic projection, based on only the last two recessions: Thoma's methodology is available here and here .

  • Macroeconomic Advisers on the Jobless Recovery

    The analysts at Macroeconomic Advisers are forecasting that employment in the US will return to pre-Great Recession levels...in 2013. Yes, jobs are being created (at least in the private sector), they say, but at a very slow pace. And they anticipate that pace to remain slow. Here's a look at their forecast, compared to previous recessions: During the first two years following recessions in the 1970’s and 1980’s, output in the nonfarm business sector rose on average at a robust annual rate of 7.1%, but during the most recent three recoveries, output growth averaged a much more tepid 3.4%. This is comparable to the differences in private payroll employment, which rose at an average annual rate of 3.5% during the earlier recoveries, but at only a 0.1% (!) average annual rate during the last three recoveries. The difference in these two growth rates — a reduction of 3.5 percentage points — is comparable to the reduction in the rate of output growth of 3.7 percentage points. Read Macro Musing: Are We in Another Jobless Recovery? here .

  • BLS: Real Wages Rose in May

    Unemployment numbers continue to look bad, as the Department of Labor yesterday reported that unemployment insurance claims rose slightly last week . For those people who do have jobs, real wages have gone up, according to the Bureau of Labor Statistics . Real average hourly earnings went up 0.5 percent (seasonally adjusted) from April to May, while real average weekly hours rose 0.8 percent. One key factor: the Consumer Price Index declined 0.2 percent . Here's a look at the trend in real wages over the last year: Read the report from the BLS here .

  • Employment and U.S. Recessions

    As the econoblogosphere debates the economic benefits of health care reform, and anticipates monthly job figures (coming in a week), Mark Thoma , of EconomistsView , shares this image:

  • The Atlantic: Long-term Effects of a Jobless Recovery

    The number of Americans filing for unemployment dropped another 43,000 last week , but joblessness remains the primary lasting effect of the global economic crisis. In a new report from the White House, President Obama's Council of Economic Advisers are predicting unemployment will stay near 10% for the rest of the year, and won't fall below 6% until 2015 (from the Chicago Tribune) . The effect of this period of high unemployment might last much longer than 5 years for many Americans, according to The Atlantic 's Don Peck : It will leave an indelible imprint on many blue-collar men. It could cripple marriage as an institution in many communities. It may already be plunging many inner cities into a despair not seen for decades. Ultimately, it is likely to warp our politics, our culture, and the character of our society for years to come. That's from Peck's new article: How a New Jobless Era Will Transform America. Peck breaks down the lasting effect of today's joblessness into four key areas, with the first half of the article focusing on the effect on two groups he says are particularly hard hit--young workers, and men. This is a must-read for soon-to-be college graduates especially, though it is not a pleasant read. Lisa Kahn, an economist at Yale, has studied the impact of recessions on the lifetime earnings of young workers. In one recent study, she followed the career paths of white men who graduated from college between 1979 and 1989. She found that, all else equal, for every one-percentage-point increase in the national unemployment rate, the starting income of new graduates fell by as much as 7 percent; the unluckiest graduates of the decade, who emerged into the teeth of the 1981–82 recession, made roughly 25 percent less in their first year than graduates who stepped into boom times. But what’s truly remarkable is the persistence of the earnings gap. Five, 10, 15 years after graduation, after untold promotions and career changes spanning booms and busts, the unlucky graduates never closed the gap. Seventeen years after graduation, those who had entered the workforce during inhospitable times were still earning 10 percent less on average than those who had emerged into a more bountiful climate. When you add up all the earnings losses over the years, Kahn says, it’s as if the lucky graduates had been given a gift of about $100,000, adjusted for inflation, immediately upon graduation—or, alternatively, as if the unlucky ones had been saddled with a debt of the same size. When Kahn looked more closely at the unlucky graduates at mid-career, she found some surprising characteristics. They were significantly less likely to work in professional occupations or other prestigious spheres. And they clung more tightly to their jobs: average job tenure was unusually long. People who entered the workforce during the recession “didn’t switch jobs as much, and particularly for young workers, that’s how you increase wages,” Kahn told me. This behavior may have resulted from a lingering risk aversion, born of a tough start. But a lack of opportunities may have played a larger role, she said: when you’re forced to start work in a particularly low-level job or unsexy career, it’s easy for other employers to dismiss you as having low potential. Moving up, or moving on to something different and better, becomes more difficult. Read the full article here .

  • Reading the Future of Hiring in Temp Worker Data

    In the surprisingly positive (or at least less negative than expected) unemployment numbers last month, the category that showed the highest growth was "temporary workers." As Louis Uchitelle reports in the New York Times, 52,000 temporary workers were hired last month . The hiring of temp workers has, in the past two recessions, signaled a turnaround in unemployment and the economy. Uchitelle: As demand rose after the last two recessions, in the early 1990s and in 2001, employers moved more quickly. They added temps for only two or three months before stepping up the hiring of permanent workers. Now temp hiring has risen for four months, the economy is growing, and still corporate managers have been reluctant to shift to hiring permanent workers, relying instead on temps and other casual labor easily shed if demand slows again. So is the fourth quarter surge in temp hiring a sign of a faster, and not-so-jobless recovery? Bill McBride of Calculated Risk isn't so sure , and he points us to an article by the San Francisco Chronicle's Tom Abate, in which one Bureau of Labor Statistics economist suggests that we probably have to wait several months to start to see real job growth: BLS economist Amar Mann said an analysis by the San Francisco office suggests that employers are getting more sophisticated about using temp hiring as a clutch to downshift into recessions and upshift into recoveries. Mann said temp jobs started down a month after overall employment dropped during the 1990-91 recession. But by the 2001 downturn, employers started cutting temps about five months before they started issuing pink slips to the general workforce. In the current recession, he said, companies began shedding temps 12 months before they started cutting permanent payrolls. A similar pattern prevailed in the two prior recoveries, Mann said. Temp jobs came back at the same time as overall employment after the 1991 recovery. Temporary employment rebounded five months before the general job market turned positive following the 2001 dip. If that pattern holds, it could be next summer before general payrolls start to grow. Read In economic woes, firms count on temp workers here .

  • Reconsidering 'Normal' Unemployment Levels

    Mark Thoma has become one of the key members of the Econoblogosphere. His Economist's View blog is a must read for anyone tracking developments in the US economy and economic thinking in general. Now he's also writing for CBS's Moneywatch.com . In a recent post at his new spot, Thoma takes a look at unemployment and whether we will have to accept a "new normal" for the percentage of Americans out of work: Prior to the current recession, the target rate of unemployment — the sum of the frictional and structural components — was somewhere near 4 percent. Will it be the same after the recession ends? That depends upon what happens to the frictional and structural components of overall unemployment. Frictional unemployment falls during recessions. People are afraid to leave their jobs, even jobs they dislike quite a bit, because the prospects for finding new employment aren’t very good. And searching for a new job while still employed is less likely to be successful than during boom times. But as the economy recovers and confidence in job prospects recovers along with it, the level of frictional unemployment should go back close to where it was. Thus, I don’t expect this component to change very much. The change in the structural component could, however, be significant. I expect structural unemployment to be higher than it was, particularly in the next few years. We had too many resources in housing, finance, and automobile production, and it will take time for the economy to make the necessary structural adjustments. When this is combined with continuing globalization, as well as the higher savings rate and correspondingly lower consumption expected from households in the future, both of which cause structural change within the economy, the expectation is that the new target rate of unemployment will rise above the 4 percent level it was at before the recession. Read the full post here .

  • Janet Yellen on Limited Strength of Recovery

    San Francisco Fed President Janet Yellen spoke in Phoenix yesterday, and she presented a relatively reserved view of the economy. it was her first speech since the economy entered its current recovery phase, and she defended and commended government action in fighting off economic meltdown. But she also warned that this recovery is going to be very slow. And she focused on two key factors--household spending and the woeful labor market: Consumers have surprised us in the past with their free-spending ways and it’s not out of the question that they will do so again. But I wouldn’t count on them leading a strong recovery. They face high and rising unemployment, stagnant wages, and heavy debt burdens. Their nest eggs have shrunk dramatically as house and stock prices have fallen, and their access to credit has been squeezed. It may be that we are witnessing the start of a new era for consumers following the harsh financial blows they have endured. 2 We often hear the word “deleveraging” used to describe the push by financial institutions to scale back debt and build equity. Households too have now begun to pay down debt and rebuild their savings. This phenomenon can be seen not only in the United States, but in most countries that experienced similar housing booms. The United States was hardly the only country where households borrowed heavily just before a severe housing bust set in. And those countries with greater increases in debt relative to income before the crisis experienced greater declines in consumption spending once the crisis began. In the United States, the personal saving rate, which had fallen to an incredibly low 1 percent in early 2008, has averaged 4 percent so far this year and may well rise higher. In the current environment, such belt-tightening makes great sense from the standpoint of individual households. In fact, some households may have no other option because their access to credit has been crimped. Over the long run, higher saving is surely a good thing for our economy because it provides capital that can be devoted to modern infrastructure, technology, and other productive investments that enhance our standard of living. All the same, the transition to a higher saving plane could be painful if it reduces the growth rate of consumer spending for an extended period. Weakness in the labor market is another factor that may keep the recovery sluggish for quite some time. Payroll employment has been plummeting for more than a year and a half, and, even though the pace of the decline has slowed, unemployment now stands at its highest level since 1983. In addition, many workers have seen their hours cut or are experiencing involuntary furloughs. To bolster earnings in the face of weak revenue growth, employers have been aggressive in cutting labor costs and jobs, and my business contacts say they will be reluctant to hire again until they see clear evidence of a sustained recovery. Weak demand for workers is also putting a lid on paychecks. Wages are barely rising. A well-known measure of overall employment costs rose by only 1¼ percent over the past year, the smallest increase in the history of the series. High unemployment, weak job growth, and paltry wage increases are a recipe for sluggish consumer spending growth and a tepid recovery. The U.S. experienced so-called jobless recoveries following the previous two recessions in 1991 and 2001, when job creation remained weak for several years following the business cycle trough. In both cases, output growth was less robust than in the typical recovery and, unfortunately, things seem to be shaping up similarly this time around. Since she gave the speech in Phoenix, Yellen's comments about the real estate market were both interesting and relevant to the local crowd. And she also addresses the Fed's monetary policy, past and present. Read the full speech here .
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