(What’s Left of) Our Economy: Blaming Extra Unemployment Benefits for U.S. Labor Shortages Just Got a Lot Harder

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CCP Virus, coronavirus, COVID 19, Employment, Jobs, labor markets, labor shortages, recession, unemployment, unemployment benefits, workers, {What's Left of) Our Economy

If you’ve been following the economic news for the last few months, you know that one of the most heated policy debates that’s broken out concerns the impact of the supplemental federal unemployment claims that America’s jobless became eligible for due to the CCP Virus- and lockdowns-induced recession and its continuing aftermath.

Specifically, opponents of these payments – which will end for all states on September 6 (unless they don’t?) – charge that they’ve needlessly enabled many workers to avoid or delay returning to businesses, and thereby greatly worsened labor shortages reported by so many employers. Supporters insist that they’ve been a minor contributor, and that the shortages stem from many more important factors, like ongoing health concerns or childcare issues or the apparent decision of many Baby Boomers and near-Boomers that the pandemic created a convenient time to retire.

I’ve believed for months that the biggest truth has been “all of the above,” but have been frustrated by the lack of statistics that could at least start providing reasonably convincing answers. And unfortunately, this post’s appearance doesn’t mean that terrific data has been found. But what I’ve gone over in the last few days seems reasonably informative, and what it tells me is that the extra federal benefits haven’t been a significant deal at all in the U.S. jobs picture.

What I did was compare four indicators of employment for the states that announced that they’d stop paying those extra benefits by the end of June (along with Louisiana, which announced a July 31 cutoff) and for the states that have decided to continue them as long as Washington was sending the funds. The indicators are unemployment rates, numbers of people employed, first-time jobless claims filed, and levels of continuing jobless claims. And recent Labor Department reports make possible comparing the unemployment rates between June and July, and both sets of claims numbers between the week ending June 26 and the week ending July 24. So they should provide some information on whether the announcement of imminent cutoffs led the jobless to secure reemployment faster.

These data can’t provide definitive answers for numerous reasons. For example, as this article makes clear, the $300 extra federal benefits on which I concentrated haven’t been the only extra benefits provided during the pandemic, and even six of the “early cutoff” states have continued to provide some combination of the others. In addition, two of the early cutoff states have been under court orders to continue the benefits (Indiana and Maryland), and lawsuits are pending in three others (Ohio, Oklahoma, and Texas.) Moreover, state benefit levels vary tremendously, both in terms of payment amounts and eligibility periods. So depending on where they live, unemployed Americans could have lost various extended benefits and still received benefits from their state governments (for varying timeframes) generous enough to affect their need or desire to return to work.

But what follows is a pretty good start to the search for answers. And analysts do get one break: The states plus Puerto Rico and the District of Columbia to be examined divide evenly into two groups of 26.

First, the jobless rate comparisons. As widely known, these aren’t perfect measures of the national employment situation because they leave out big categories of distressed workers like those too discouraged to even search for a job, and those employed part-time because they have no other choice. And as suggested above, they shed no light on changes in the numbers of retirees.

Be that as it may, of the 26 cutoff states, between June and July, unemployment rates fell in 19, rose in three, and held steady in four. And of the twenty cutoff states where no litigation was either affecting payment policies or coming down the pike, and excluding tardy Louisiana, jobless rates fell in 16, rose in two, and remained unchanged in two.

How does that compare with the unemployment rates in the non-cutoff states? They fell in 18 of the 26 states between June and July, rose in four, and held steady in four. So I don’t see a big difference there.

Turning to employment levels, of the 26 total cutoff states, from June to July, they rose in 23 and fell in three. Of the twenty facing no litigation issues and, again, also excepting Louisiana, employment levels rose in 19 and fell in one. Those results actually slightly lag the performance of the non-cutoff states, where employment levels rose in 25 of the 26 between June and July.

It’s much the same story for initial jobless claims from the week ending June 26 and the week ending July 24. For the 26 total cutoff states, initial claims between these two weeks rose in six and fell in 20. Of the 20 facing no legal issues, and excepting Louisiana, claims rose in five and fell in 15.

That’s almost identical to the results for the non-cutoff states, where initial claims between those two weeks rose in five states and fell in 21. In fact, a slight edge goes to these states on this score, too.

Finally, for continuing claims, in the 26 total cutoff states, these fell in 21 and rose in five between the weeks in question. And of the 20 with no litigation existing or pending, and excluding tardy Louisiana, continuing claims fell in 15 and rose in five.

In this group of 26, 22 saw continuing claims fall and four saw the rise.

Again, I’m not contending that these numbers are definitive. More detailed analysis accounting for more of the aforementioned differences among states would help a lot. Nor do I doubt that labor shortages have emerged in some parts of the economy. But if there’s proof out there that the extended unemployment benefits had much impact, it hasn’t emerged yet – and let’s hope it emerges before the economy runs aground for an extended period again.  

Im-Politic: More Anti-Trump Media Bias – Including One Example That’s Homophobic

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amnesty, Bloomberg.com, deportation, Donald Trump, Gang of 8, Hillary Clinton, homophobia, illegal immigrants, Im-Politic, immigration reform, Jobs, John McCain, John Micklethwait, Labor Force Participation Rate, labor markets, LGBT, living standards, Mainstream Media, Mark Zandi, Max Ehrenfreund, media, media bias, part-time, productivity, The Washington Post, Vladimir Putin, wages

I sure hope all you RealityChek readers have had a great Labor Day weekend. Unless it was a complete disaster, it had to be better than the last few days’ performance just registered by the Mainstream Media.

On Sunday, I reported on a truly contemptible smear of white working-class Americans delivered by Time magazine uber-pundit Joe Klein. But published this weekend along with this display of mass character assassination was a swipe at Republican presidential candidate Donald Trump that can only be reasonably interpreted as homophobia, and an example of outright ignorance of the basic economic concept of productivity, and of recent U.S. labor market trends. For good measure, this second piece left out information on its main source that strongly suggests major political bias.

The homophobia was delivered courtesy of no less than John Micklethwait, the current Editor-in-chief at Bloomberg.com who previously held this post at The Economist. Think I’m exaggerating? See for yourself. In the course of an otherwise informative interview with Vladimir Putin, Micklethwait pressed the Russian president in this way for his views of Trump and his Democratic counterpart, Hillary Clinton:

“[Y]ou are really telling me that if you have a choice between a woman, who you think may have been trying to get rid of you, and a man, who seems to have this great sort of affection for you, almost sort of bordering on the homoerotic, you are really going to go for, you are not going to make a decision between those two, because one of them would seem to be a lot more favorable towards you?”

I had to go over this passage several times before convincing myself that I’d actually read it correctly. Even giving Micklethwait’s language the most charitable interpretation it deserves – that the journalist meant it simply as a joke – what exactly distinguishes it from the kind of sniggering locker-room-level humor that’s now recognized as demeaning and hurtful? Therefore, is it remotely plausible to doubt that Micklethwait himself believes that such emotions are fundamentally shameful, and that his attribution of such feelings toward Trump reveal a positively vicious bias against the maverick politician?

Here’s hoping that gay activist organizations come down hard on Micklethwait’s bigotry – and insist that his resignation is needed to guarantee the integrity of Bloomberg’s coverage of both American politics and LGBT issues.

The second major media stumble came in a Saturday Washington Post Wonkblog item spotlighting a claim that Trump’s immigration policies “could put Americans out of work.”

That’s of course an entirely valid and important possibility to report on, but author Max Ehrenfreund (and his editors) failed to fulfill a fundamental journalistic obligation by omitting from his article the unmistakable anti-Trump bias of Mark Zandi, the economist who came up with this finding. Yes, the piece mentioned that Zandi is a former aide to Arizona Republican Senator John McCain. But what it didn’t tell you is that McCain was a charter member of the “Gang of 8” – the bipartisan group of Senators that several years ago launched a powerful push for an amnesty-focused immigration reform bill. Nor did Ehrenfreund mention that Zandi has also contributed to Clinton’s presidential campaign – which has been pushing immigration reform proposals even more indulgent than the Gang’s.

As for the Zandi-Ehrenfreund case that Trump’s immigration policies would backfire powerfully on the U.S. economy, it could not have been more ignorant or incoherent economically. As Ehrenfreund explained it, “deporting [millions of] undocumented immigrants would increase costs for employers, because they would have to compete for the workers remaining in the United States, causing wages to rise.”

Full stop: Amnesty supporters have maintained for years that most illegals are simply filling “jobs that Americans won’t do.” Now they’re saying that if a the supply of American labor shrank due to deportation, increasing wages would summon forth replacements who are either native-born or legally residing in the country? Do tell! Ehrenfreund and Zandi might also have mentioned that robust wage increases have been one of the most conspicuously absent developments during the weak current U.S. recovery since it technically began some seven years ago.

Just as strange was the claim that “Already, the labor force has been shrinking as older workers retire, and the unemployment rate is under 5 percent, which suggests relatively few workers are looking for jobs.” Don’t Ehrenfreund and Zandi know that much of this shrinkage has taken place among working age women and especially men? Or that the number of Americans working part-time involuntarily still remains above pre-recession levels? In other words, there’s an enormous population in the United States that would bid for better-paying jobs.

Perhaps strangest of all is the Zandi-Ehrenfreund contention that “To compensate, businesses would have to increase prices. Some firms would lose customers and could be forced out of business. ‘Asking these folks to leave is going to put a hole in the economy that’s going to cost jobs,’ Zandi said. ‘It’s going to cost the jobs of American citizens.'”

That is, Zandi and Ehrenfreund have either omitted or ruled out the possibility that many companies will eventually respond instead by either automating and/or by otherwise improving their efficiency in ways that boost their productivity – thereby laying the ground for sustainable prosperity and living standard increases going forward. These two pessimists might believe that this venerable maxim of economics no longer holds, and that “this time it will be different.” But maybe they could do readers the courtesy of explaining why?

This Washington Post article’s descent into fakeonomics hardly stops here. But the above reasoning should be enough to establish its silliness – and to prompt the question if comparably doofy pro-Trump studies would ever see the light of day in the paper.

I closed my last post by asking why recent polls show Americans’ confidence in the media has stayed even in the low double-digits on a percentage scale. These Bloomberg and Washington Post pieces don’t merit even single-digit approval.

(What’s Left of) Our Economy: Do Fed Hawks Believe in a Consumer-less Economy?

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consumers, Federal Reserve, labor markets, monetary policy, slack, unemployment, wages, workers, {What's Left of) Our Economy

Especially since major U.S. stock indices hit their March, 2009 bottom, it’s been clear that U.S. businesses have learned how to thrive without strong personal consumption in America or even anywhere in the world. They could sell to governments and to other businesses, and most of all, they could ring higher profits out of greater efficiencies.

This afternoon, the new minutes of the latest (July 29-30) Federal Reserve Open Market Committee meeting posed a new, much more interesting question: How can the U.S. economy nowadays prosper without a reasonably strong American consumer?

Not that the question was explicitly asked by Federal Reserve’s staff or the governors or regional Fed bank presidents comprising the FOMC. But it came up nonetheless in the minutes’ description of these participants’ views on the current state and outlook for the economy. According to the minutes, “a couple of” these Fed leaders “indicated that the pass-through of labor costs has been more attenuated since the mid-1980s and that wage pressures might not be a reliable leading indicator of higher inflation.”

These comments came amid what seems to have been a pretty vigorous debate over whether the U.S. job market is improving enough to justify the start of monetary policy normalization sooner rather than later. The stakes couldn’t be higher, since – at least as the Fed participants and many others see it – starting to raise interest rates too soon too fast from years at just about zero could choke off a U.S. economic recovery widely seen as far too feeble. Yet postponing rate hikes too long or raising them too slowly could risk economic overheating and worrisome inflation. (A pretty large minority of economic observers views the Fed’s policies as a big part of the problem, and insists that growth and hiring can’t become satisfactory as long as super easy money keeps encouraging too much outright speculation and other unproductive uses of capital.)

Wages have become crucial in this debate because historically when they have started rising strongly, broader inflation hasn’t been far behind. The reason: Although they help foster growth, the resulting higher levels of demand and consuming can spark a vicious cycle in which businesses recognize the leeway to raise prices, these price increases feed pressure for more wage hikes, and so on.

At the same time, although the headline unemployment rate has been falling faster than the Fed consensus has expected, wages have remained weak – which has prompted monetary “doves” to doubt how tight the job market, and underlying economic activity, could actually be. As this faction sees it, wages are but one of a set of indicators other than the headline jobless rate that needs to be improving before real labor market health and broader economic vigor can be considered restored, and before inflation watchfulness will become reasonable.

The above “pass through” point seems to have been made by Fed hawks pushing for higher rates. (The initially released form of the minutes discretely keeps the sources of all individual comments confidential. We won’t know who exactly said what until the full version is released – five years from now.) So what if there’s no wage inflation, they appear to be asking. Inflation can strengthen dangerously without it.

Yet what they now need to explain is how — given circumstances today and likely for the foreseeable future. For assuming that economy-wide inflation can take off without wages substantially above today’s historically modest level seems to assume that growth can become truly robust even though the median American worker’s pay is barely keeping up with the prices of what he or she needs or wants to buy. In other words, it seems to assume either that workers will be able to maintain and even increase their consumption despite flat-lining paychecks, or that some other huge source of demand for American business’ output will appear.

Irrespective of economy-wide growth, prices can certainly surge in certain parts of the economy when credit or other forms of buying power specific to those sectors becomes too abundant. Think of the housing price bubble of the previous decade – which was by no means accompanied by record peacetime overall economic growth – the higher education cost bubble inflated greatly by student loan availability, and longstanding health care cost inflation fueled by massive government subsidies.

Economy-wide inflation largely or partly disconnected from wage inflation isn’t unprecedented, either. For example, during the 1970s, much inflation stemmed from big hikes in the price of imported oil. But these increases had nothing to do with monetary policy, and little to do with the economy’s overall level of activity. They came from a foreign producers’ cartel starting to flex its muscles. Similarly, prices of agricultural commodities can rise quickly – for a while – simply because of bad weather.

Yet aside from this type of commodity inflation, nothing capable of generating significantly faster economy-wide growth without significantly better paid American workers seems visible today. America’s rich and super-rich of course continue to fare increasingly well. But the higher incomes rise, the less consumption proportionately is spurred by this income. So the one percenters and even the ten percenters won’t be able to boost economy-wide demand enough to support a much stronger recovery.

During the bubble decade, Washington enabled lower-income Americans to consume strongly despite stagnating pay by showering them with credit (i.e., the housing finance model was extended to the entire economy). Yet since this strategy nearly collapsed the entire world economy and triggered the worst national and global recessions in decades, don’t expect a replay (at least not right away).

As indicated above, American business could sell to other American businesses. But at some point, many of these businesses need to sell to those struggling consumers, or else they’ll stop buying machinery, materials, and other producer goods. Nor is it likely that foreign demand can adequately supplement, much less replace, currently subdued domestic demand. Even in good global times, other countries’ consumers and businesses never acted crazy about Buying American – at least on the all-important net basis. During a slower growth era, they’ll undoubtedly continue import even less enthusiastically.

This doesn’t mean I’m endorsing later rather than earlier tightening, or even looser money, or various other non-monetary policy demand-boosting proposals like raising the minimum wage or further extending unemployment benefits. (I’m not necessarily opposing any of them, either. That’s not the point of this post.) It doesn’t mean that I’m blasé about inflation. Nor am I coming down definitively on the cosmic question of whether demand ultimately produces supply or vice versa.

Instead, I’m saying that, contrary to Fed hawks, adequate U.S. economic growth without much better wage growth is a mirage. The sooner the Fed – and the rest of the federal government – recognizes this, the faster real recovery will arrive.