Friday, September 5, 2014

Some fallacies never die

Posted over a year ago as Modern Wage Economics: Too Subtle for the Blogosphere?, but some fallacies never die:

Our economy uses a lot less labor than it did 10 years ago, and for good reason people are interested in the relative importance of supply and demand factors for explaining what happened to the quantity of labor.

Naturally, a supply-demand decomposition exercise is enhanced by looking at both the quantity and price of labor, also known as the wage rate. That's why my book on the recession starts off with various indicators of wage rates and their dynamics (see chapter 2 beginning on page 9).

Three or four decades of labor economics research are of great assistance in this exercise. That research tells us that the price of labor from an employer's point of view is often significantly different than cash earnings per hour, and that a reduction in labor supply could be associated with reduced cash earnings even while it was increasing employer costs:

  1. A reduction in labor supply could reduce the quality of labor, with workers putting in less effort, or doing less to maintain their skills, or become less attached to the labor market.  This tends to reduce cash earnings per hour because each hour is less productive.  These have been major factors in the analysis of women's wages, where most economist believe that women's hourly earnings increased as a consequence of supplying more (see Becker 1985, Goldin and Katz 2002, Mulligan and Rubinstein 2008, and many others). See also some of the literature on unemployment insurance such as Ljungqvist and Sargent's paper on European unemployment.
  2. A reduction in labor supply or demand could increase the average quality of labor through a composition bias.  See p. 17ff of my book and the references cited therein.
  3. Because of fringe benefits, cash hourly earnings are not the same as employer cost.  As employer health insurance expenditure has been growing over time, the growth of cash hourly earnings has substantially under-estimated the growth of employer cost.

The Incidence of Supply and Demand Impulses.

Labor economists have also long studied the incidence of supply and demand impulses: that is, the effects of supply and demand factors on both wage rates and the quantity of labor. The consensus is that: (a) labor demand is more wage elastic than labor supply and (b) labor demand is even more wage elastic in the long run than it is in the short run.

Suppose that the reduction in the quantity of labor were 50% due to demand factors and 50% due to supply factors, and that we had overcome all of the measurement issues cited above. Result (a) means that wages would fall in the short run, because supply shifts translate more into labor quantity than into wage rates while, in comparison, demand shifts translate more into wage rates than labor quantity. In this example, it would be wrong to conclude from reduced wage rates than supply is less important than demand for explaining the change in the quantity of labor.

To put it another way, if we found that wage rates (properly measured) were constant, but didn't know the relative contribution of demand and supply factors to the quantity change, result (a) tells us that the majority of the labor quantity change was due to supply factors. With a labor supply elasticity of 0.5 and labor demand elasticity of -3 (reasonably conservative short run estimates), the constant wage rate result means that 86 percent of the quantity change was due to supply factors and only 14 percent due to demand factors. In the long run, labor demand is even more wage elastic, and the share attributable to labor supply is even closer to 100%.

To put it yet another way, if it were true that labor demand explained the majority of the change in labor quantity, then employer costs (properly measured) would have fallen dramatically.

Despite all of these lessons from labor economics, blogosphere economists attempt to dissect the hourly cash earnings data to perhaps find a small and probably ill-timed reduction and jump to the conclusion that labor supply shifts have made a trivial contribution to the change in labor quantity.



Don't forget agricultural employment

The payroll report shows +142k (change from July to Aug), which seems low, but note that it excludes self-employed and agricultural workers. If you add those, it's +299k primarily because (seasonally adjusted) agricultural employment increased so much.

Thursday, September 4, 2014

Real consumption

per person, it was less in July than each of the prior 4 months.


Wednesday, September 3, 2014

My one cent

Apple refused to list my book for $3.00 -- they listed it at $2.99.
Amazon went with the $3.00 price for about a week, and then cut it to $2.99.
BN is still charging $3.00.

Friday, August 29, 2014

The best way to read illustrated ebooks?

For multi-device users, amazon's free kindle app is nice. You can buy a book once and view the same book (including your personal bookmarks and notes) on PC, Mac, ios, android, and more. My only complaint here is that, unlike kindle for tablets and phones, kindle on PC or Mac does not let you double click one of the book's illustrations in order to enlarge it.

Apple's free ibooks app solves this problem with consistent image viewing in IOS and Mac: double tap or double click. In addition, the ibook store delivers to ipads an ipad-optimized version. For purchased books, ibooks synchronizes notes and bookmarks across all of your devices that have ibooks installed. I don't think ibooks will run on a PC, although in principle the itunes app will allow you to read an ibook that you purchased.

My work around for PC- or Mac-based kindle illustration views is to switch to (or stay in) full-screen single-column reading when I want a close look at an illustration. On a PC, the two buttons are next to each other on the kindle app bar (see the upper left in this screen shot):


On a Mac, the single-column button is the same and the full-screen button is Shift-Comm-F on the keyboard.

Fortunately, Side Effects is so cheap that you might as well buy it twice: one from amazon and another from apple ibooks!

Another approach is to closely examine my charts and data using the excel webapp on your PC or Mac.

Side Effects: The Economic Consequences of the Health Reform

Spending on health care has grown faster than the economy itself, even while the share of the population without health insurance was increasing. The Affordable Care Act (a.k.a., Obamacare) intends to reverse these trends, but in doing so has economic side effects. Businesses are complaining about the ACA's new tax and regulatory burdens, whereas supporters say that it is a long-overdue "shot in the arm" that will promote entrepreneurship and a "more rapid economic recovery."

Positive and negative tax effects of the ACA are carefully documented. The book offers a comprehensive market analysis of the law that arrives at conclusions as to effects on work hours, productivity, and national income. It shows what the ACA means for economic performance in the years ahead, and explains why forecasters have yet to acknowledge many of the economic forces that have been put in motion.

The book contains numerous facts and economic insights that have been unnoticed by both supporters and opponents. Anyone interested in economic performance over the next several years has to understand the contents of the Affordable Care Act from a labor market perspective and this book is so far the only comprehensive and user-friendly introduction to the topic.

Browse or buy the book now! Check acasideeffects.com in early September for numerous extras and bonus features.

Thursday, August 28, 2014

Available now!

Spending on health care has grown faster than the economy itself, even while the share of the population without health insurance was increasing. The Affordable Care Act (a.k.a., Obamacare) intends to reverse these trends, but in doing so has economic side effects. Businesses are complaining about the ACA's new tax and regulatory burdens, whereas supporters say that it is a long-overdue "shot in the arm" that will promote entrepreneurship and a "more rapid economic recovery."

Positive and negative tax effects of the ACA are carefully documented. The book offers a comprehensive market analysis of the law that arrives at conclusions as to effects on work hours, productivity, and national income. It shows what the ACA means for economic performance in the years ahead, and explains why forecasters have yet to acknowledge many of the economic forces that have been put in motion.

The book contains numerous facts and economic insights that have been unnoticed by both supporters and opponents. Anyone interested in economic performance over the next several years has to understand the contents of the Affordable Care Act from a labor market perspective and this book is so far the only comprehensive and user-friendly introduction to the topic.

Browse or buy the book now! Check acasideeffects.com in early September for numerous extras and bonus features.

Wednesday, July 30, 2014

Recent economic growth

Average annualized growth of real GDP per capita (FRED series A939RX0Q048SBEA)

3.2% last quarter
0.2% last two quarters (i.e., 2013-Q4 through 2014-Q2)
1.1% last three quarters
1.7% last four quarters

Note that the 0.2% does not use any data from the "bad winter" (2014-Q1): it is just the annualized percentage difference between 2013-Q4 and 2014-Q2.

Friday, June 6, 2014

Employment just went down

Please don't forget that the establishment survey excludes agricultural workers and many of the self-employed. The establishment survey has a lot going for it, but only for the part of the economy it covers. For anyone interested in the national economy, I recommend using the establishment survey plus unincorporated self-employed (from the household survey, seasonally adjusted) plus agricultural workers (also from the household survey, seasonally adjusted). See also the BLS on this matter.

One of the critiques of the household survey is that it is noisy month-to-month -- I agree. But my proposed augmentation of the establishment survey is not particularly noisy because the vast majority of its employment is from the establishment survey.

Changes from April 2014 to May 2014 (100s of workers):

+217 establishment survey
-213 unincorporated self-employed
-109 agricultural workers (excluding self-employed)
----------------------------------
-105 National employment change

[The average monthly change since December 2013 has been +152: just keeping up with population growth. The avg monthly change in 2013 was +171. This employment measure has increased 36 out of the past 40 months (going back to 2010, not counting this month). This month's change is 1.9 standard deviations below the average change since 2010.]
[2010 was the labor-market's low point by most employment measures. But unincorp self-employment has fallen another 567,000 since then. If you use the establishment survey, you miss that.]

Monday, March 24, 2014

Individual mandate penalties beginning to be paid (includes IRS link)

Matt Drudge famously said he's paying his.



Here are the IRS instructions, where self-employed taxpayers are told to consider including their 2014 individual mandate penalty with their estimated tax payments beginning April 15, 2014.