In the May 10th edition of the Economist, an article entitled “Make work can’t work” (p. 25 in the print edition) considered the Democratic proposal for a jobs guarantee in United States. It opened as follows:
“In April, America’s unemployment rate fell to 3.9%, its lowest since December 2000. That is not good enough for Democrats eyeing the 2020 presidential race. Senator Bernie Sanders recently promised to introduce a bill guaranteeing every American a taxpayer-financed job, should they want it. His colleague, Senator Cory Booker, has already written a bill that would test such a policy in 15 places with high joblessness. Senators Kamala Harris, Elizabeth Warren and Kirsten Gillibrand, three other potential presidential contenders, are co-sponsors. Ms. Gillibrand will reportedly soon pen her own plan, too.” (See https://www.economist.com/united-states/2018/05/12/a-jobs-guarantee-is-a-flawed-idea.)
Meanwhile, Torsten Slok (Deutsche Bank) notes that “The labor market is so tight that people are leaving disability insurance to come back to the labor market.” He notes that “The flow of people outside the labor market finding jobs every month is currently at a post-crisis high, suggesting that there is still a stock of available workers outside the labor market to draw on.”
So on one side we have a proposal for taxpayer-funded “jobs for anyone who wants one,” and on the other side we have evidence that the present recovery is finally attracting folks into the labor force and into jobs. Are Democrats setting themselves up for a defeat with this proposal? Do Republicans know how to frame this debate? And is either side figuring out that the country needs a forward-thinking immigration policy when we have 6.5 million unfilled US jobs that require skills and we don’t encourage folks from around the world to come here and fill them?
When we dig deeper, issues of labor force policy become even murkier. Many wonder whether our Phillips curve-based assumptions and models need to be thrown out. We at Cumberland think the answer is yes. Many of our professional colleagues believe the same, as longtime readers know. But the policy at the central bank and in the Congress doesn’t seem to change. The purpose of this commentary is to try to raise the level of the debate in layman’s terms rather than with mathematical models.
We will offer a list of points to think about.
Greg Ip, writing for the Wall Street Journal, has phrased a key question well with this lead sentence: “Standard models of the economy are built on a simple relationship: When unemployment goes down, inflation eventually goes up. That relationship has looked sickly for years. In Japan, it may be dead – a preview of what central bankers may confront everywhere.” https://www.wsj.com/articles/injapans-hot-economy-aworrisomelesson-oninflation-1527068471
Here’s a link to an NBER paper (NBER Working Paper No. 24576, Issued in May 2018) on “Working Longer in the US: Trends and Explanations”: (http://www.nber.org/papers/w24576). We suggest serious readers take a look (hat tip Brian Barnier).
Peter Boockvar noted on May 8th that “In March there was a record number of job openings totaling 6.55mm (survey dates back to 2000). That was up from 6.08mm in February and about 400k above the estimate. Areas that most need warm bodies relative to February were construction, transportation (I’m assuming truck drivers), information, professional/business services, education/health and leisure and hospitality. There was also an increase in government jobs available. Unfortunately, the lack of supply has made it very difficult to fill these jobs. Hiring’s fallen by 86k. Because existing employees are feeling more confident about the state of the labor market, the number of quitters rose, with the quit rate at 2.3%, matching the most since April 2001.”
So why are several senators advancing their taxpayer-funded “jobs for anyone who wants one” program. They need to be pressed to answer.
Let’s dig deeper. Here are some statistics courtesy of Jessica Rabe at Datatrek.
• “The number of job openings jumped by 472,000 to a record high of 6.55 million in March 2018 (latest available data), up 16.8% year-over-year. No doubt this shows the tremendous interest that employers have with respect to hiring new workers.
• “The trouble comes when looking at how many people are actually getting hired, which slipped by 1.6% m/m to 5.43 million. It is still up 2.4% y/y, but moving in the wrong direction. It’s not like employers are cutting back on their payrolls either, as the number of layoffs and discharges declined by 6.3% y/y to 1.56 million.
• “Consequently, job openings continue to exceed the number of people starting new jobs, which has been an unusual development over the past few years compared to JOLTS’ full history. For example, from December 2000 (when the data was first collected) to July 2014, there were more hires than job openings during every single month. In fact, the difference between hires and job openings averaged about 1 million during that time frame.”
What about the “gig” economy and the impact on the labor force? Try this link: https://www.employeebenefitadviser.com/slideshow/10-best-gig-economy-jobs. Here is the lead paragraph, quoting a Bloomberg story:
“Murray Webb had been a lackluster student more interested in sports than schoolwork while attending a small Virginia college. Then he transferred to Kennesaw State University in suburban Atlanta to pursue a master’s degree in applied statistics and landed four job offers upon graduation. Webb, 33, now earns $160,000 a year targeting health-care customers for hospitals and says he is approached weekly by companies and recruiters seeking data scientists. Webb is part of a national employment trend that has data scientists at tech companies such as Airbnb Inc. and Uber Technologies Inc. adding the words “I’m hiring” next to their LinkedIn.com profiles.”
Here is the Intuit 2020 report – 27 pages of thought-provoking elements that suggest the Bureau of Labor Statistics is missing the counting and that decisions in the expanded labor universe are changing behaviors and the way we should be accounting for those changes. https://http-download.intuit.com/http.intuit/CMO/intuit/futureofsmallbusiness/intuit_2020_report.pdf. There is a debate about this issue. Our view is that freelance and independent work is booming and not being captured in old models that were created in the manufacturing era. We think this is a big deal.
Torsten Slok (Deutsche Bank, May 25, 2018) takes an opposing view:
“A Fed report this week found that gig work is a very small share of family income. For over 75% of gig workers, these activities account for 10% or less of their family income. This picture is also confirmed when looking at the ride-sharing market. The total number of Uber drivers in the US is 833,000; and translated into full-time full-year jobs, there are about 100,000 Uber drivers. Comparing these numbers with US economy-wide employment of 148mn shows that the gig economy is more myth than reality. Another way to look at it is to think about how small a share of your total income goes to car services. Why is the gig economy getting so much attention? It is probably because many people in Manhattan now use ride-sharing apps and mistakenly think that what they are seeing is representative for the rest of the economy.”
Maybe but maybe not? This Jobble report offers 45 statistics about the Gig economy: https://jobble.com/45-eye-popping-stats-about-the-gig-economy/.
Let’s segue to what taxpayers are being asked to pay for and focus on who is doing the paying.
We’ve discussed the independent contractors and the rapid growth rates in the gig economy and why folks believe this trend will continue and accelerate. Gig workers who are legally filing their tax returns are being asked to pay for the “jobs for everyone who wants one at taxpayer expense” proposal. There are also 148,424,000 folks (April, 2018 US government sources) who are currently working in the US. They are taxpayers who happen to already hold jobs. They are being asked to pay for this proposal. Note that every statistical cohort and category has more people working today in it today than a year ago.
Philippa Dunne and Doug Henwood note in TLR (May 14, 2018) how low “initial unemployment claims are as a percent to flows into the unemployment” count. They are down from peaks around 100% in 1990, 2000, and 2009 to about 65%, a low point in many decades. They also note that the “ratio of insured to civilian unemployment rates” is the lowest in half a century. Is this the time to have a “taxpayer-funded jobs for anyone who wants one” program?
The shortage of workers is in skills, not in people. That is becoming clearer. In the wake of the financial crisis, there are 10 million more people employed who hold bachelor’s degrees. About 1 million more who hold associate’s degrees have added to the employed headcount. The number who have only a high school diploma or less has declined nearly 5%. We know education pays. But can we find a way to increase workers’ skills? Does the taxpayer-funded “jobs for everyone who wants one program” require an education standard? Will it be enforced? By whom? At what cost?
Also, about 8 million jobs in the service sector are newly added since 2014. Manufacturing and mining are essentially flat. I won’t get into the government sector but will leave that to readers to do on their own since government is at every level in our society.
Most of the new civilian jobs that have been created since the financial crisis are full-time jobs. There have been about 18 million of them. Part-time new jobs have added about 3.5 million. The last time the ratio of employed to unemployed was this high was 20 years ago. And, finally, the employment-to-population ratio for those over age 65 is at an all-time record high of 19%. Note that most of the other 81% are the taxpayers who would be asked to pay for the jobs for the “anyone who wants one” program.
Dear readers, you are taxpayers in most cases. You now know that there were six unemployed workers per job opening in 2009, and now the ratio is only one for one. What you do with regard to the Democratic jobs guarantee initiative I mentioned at the start of this commentary is up to you. But please remember that what we do with opening borders to bring in the much-needed skills we cannot seem to provide domestically is also up to you. This not a Democrat-versus-Republican debate; it is a national policy debate that the country must have. So we constituents must tell both our Democratic and Republican members of Congress that it is time to have that discussion and to take a hard, nonpartisan look at the facts and the nation’s labor needs.
Politicians in Washington and in some states may want to examine Finland’s withdrawal from its guaranteed basic income experiment. See https://www.bloomberg.com/amp/view/articles/2018-04-26/finland-s-basic-income-experiment-was-doomed-from-the-start. You may recall that Finland launched the experiment three years ago (see https://www.nbcnews.com/business/economy/finland-s-experiment-giving-away-money-shines-light-idea-universal-n869611). Finland is a case study in the failure of exactly what the senators are proposing.
Thank you for taking time to read this rant.