Ebbs and Flows of Women's Market Work

Copyright, The New York Times Company

I noted several months ago that, for the first time in recorded history, women’s payroll employment might surpass men’s during this recession. This July women held 49.9 percent of all payroll jobs, and some recent research by Federal Reserve economists gives a sense of whether the current trend — heading toward a female-majority work force — will continue.

Obviously, millions of jobs have been lost during this recession. These job losses have been especially concentrated in industries like manufacturing and construction, which disproportionately employ men. The sharp contraction in these male-dominated sectors is part of the reason that male employment has fallen much more than female employment during this recession, and that women, as a result, have increased their share of the work force.

But with only the 49.9 percent figure, we do not know whether the high unemployment rate for men comes just because men are more likely to be laid off, or if it’s also because men are finding new jobs more slowly than women are.

Aysegul Sahin and Joseph Song at the Federal Reserve Bank of New York and Bart Hobijn at the Federal Reserve Bank of San Francisco have examined job flows data that help assess the relative importance of these various explanations for our “mancession.” And indeed, the Fed researchers found that the main reason for the “mancession” is that so many more men than women lost their jobs — and not that women find new jobs more quickly.

In any given month, the Labor Department considers every individual either employed, not employed but looking for a job, or neither (i.e., out of the labor force altogether).

Although more men are unemployed, the amount of time the average person is unemployed is the same for men and women. (And as you might expect, both sexes are spending more time unemployed than they did prior to the recession.)

The reason that men and women remain unemployed about the same time is that unemployed men and unemployed women are pretty similar in terms of their rates of finding a new job.

These flows help us predict whether women’s 49.9 percent share of payrolls will further increase, or ebb back. The implication: For the time being, women’s share of the work force seems to hinge primarily on continued contraction in manufacturing and construction.

Why? As I explained, more men are searching for jobs and, so far, the average male job searcher has been about as successful as the average female searcher. Once the male-intensive industries slow down their layoffs (even if those industries never actually expand again), more men than women will gradually find new positions — remember that more men are searching — and we will see women’s share recede from the 50 percent mark again.

Professor Kremer Says that Population Growth Encourages Innovation, Even in Poor Societies

A recent study reiterated the conclusion that population growth ought to be controlled in order to combat global warming, and other world problems. The authors of studies like these have exaggerated the benefits of population control, because they ignore some of the significant economic benefits of large populations -- in particular, the effect of population on the rate of technical change.

Some may argue that population spurs innovation only when the population in question is "adequately" educated, and that population needs to be controlled to achieve that adequate education. That's and interesting hypothesis, and worthy of further investigation, but let's not ignore what's already been published on this subject. Harvard's Professor Kremer wrote

"high population spurs technical change ... [historically] societies with larger initial populations have had faster technological change ...."

Michael Kremer (1993), "Population Growth and Technological Change: One Million B.C. to 1990," Quarterly Journal of Economics 108:3 (August), pp. 681-716.

In case you're wondering, the populations considered by Professor Kremer were actually LESS educated than the populations that some want to control today.

[Interestingly, the link above proves that at least some population control advocates are aware of the Kremer study, and have deliberately chosen to ignore it in the recent blogosphere debate]

The 400 Percent Tax

I have explained how the FDIC-HASP mortgage modification plan massively distorts the supply of income-earning efforts, because its mortgage modification is large and means-tested: its formula implies that an action taken by a borrower to increase his income would increase his housing payment obligation by 31 percent of the income increment. If the affordable payment (i.e., the payment that would comprise 31 percent of income) were re-evaluated monthly, this would amount to a 31 percent marginal tax rate in each month that a modification could occur.

Standard practice determines an affordable payment based on the most recent year’s income, and puts that payment in place for five years. Thus, a marginal dollar earned in the base year raises mortgage payment obligations by 31 cents in each of the following five years, and may also raise payment obligations beyond the five-year modification period.

In what I have previously written on this subject, I ignored the later year terms as would be appropriate if modifications were achieved soley by reducing interest payments (that is, leaving the time path of principal payments unchanged), and interest payments were permitted to jump up to the originally contracted amount when year 5 was over (but note that the U.S. Treasury, 2009, has said “[the] lower interest rate must be kept in place for five years, after which it could gradually be stepped up to the conforming loan rate in place at the time of the modification.”)

At the other extreme, when followed by a modification of purely principal, a marginal dollar earned in the base year raises mortgage payment obligations by 31 cents in every year the loan is outstanding. For example, with 25 years remaining and an interest rate of 6 percent per year, this amounts to a 396 percent marginal tax rate!

It is my impression that interest reductions are the margin used most to modify mortgages, in which case the 396 percent marginal tax rate would not apply. But it does illustrate the point that the 131 percent rate I have been using could be significantly understated.

Terrible Incentives Abound

I have always suspected that this recession has proliferated private-sector-means-testing (and the bad incentives that go with means testing). Now I have proof.

Say It Enough, and It Becomes Truth

I write "The authors of studies like these have exaggerated the benefits of population control, because they ignore some of the significant economic benefits of large populations."

Within hours it is claimed that I wrote "we shouldn't improve education and access to contraception in developing nations"!

Shortly thereafter, it is repeated that I said that "we shouldn't improve education and access to contraception in developing nations."

Obviously, it is too risky to rebut me directly -- ie, take the position that it is OK to ignore some of the significant economic benefits of large populations. But why not just ignore my point rather than fabricating something to discredit?

While reasonable people can debate whether the effects of population on innovation are small (or even in the other direction) when compared with costs of population, don't the innovation effects have to be considered before coming to a conclusion? Where is the body of research that did this work? If it exists, why is it conspicuously absent from discussions by population control advocates?

Apparently there are some really smart people out there who can secretly consider an effect like this, come to an accurate and private conclusion, and then brand as foolish anyone who publicly considers the effect (even without coming to a conclusion as to what is the net of all relevant effects).

It looks like Professor Michael Kremer (a well-deserving winner of the "genius award") missed the secret meeting too

"high population spurs technical change ... [historically] societies with larger initial populations have had faster technological change ...."

Michael Kremer (1993), "Population Growth and Technological Change: One Million B.C. to 1990," Quarterly Journal of Economics 108:3 (August), pp. 681-716.

In case you're wondering, the populations considered by Professor Kremer were actually LESS educated than the populations that some want to control today.

[Those coming here from Professor DeLong's blog may be wondering why he recommended Professor Kremer's paper to them a few months ago, yet now he vilifies someone for stating a weaker version of the same point, citing Professor Kremer's paper and others in that literature.

The same visitors are probably also puzzled by the fact that Professor DeLong himself wrote a paper that heavily relied on Kremer's (1993) work, yet did not even hint at how (supposedy) terribly evil is its main conclusion that "high population spurs technical change."]

The More the Merrier: Population Growth Promotes Innovation

Copyright, The New York Times Company
A recent study reiterated the conclusion that population growth ought to be controlled in order to combat global warming, and other world problems. I beg to differ. The authors of studies like these have exaggerated the benefits of population control, because they ignore some of the significant economic benefits of large populations.

The director-general of Unicef has been quoted as saying, “Family planning could bring more benefits to more people at less cost than any other single technology now available to the human race.” And one of the benefits of reduced population, it is claimed, is reduced carbon emissions and therefore mitigation of climate change.
This statement takes technology for granted, yet technology itself depends on population.

Especially important among the sources of technical progress — discoveries — are trial and error, and incentives. Reasonable people can disagree about the relative importance of these two, but both are stimulated by population.

The more people on earth, the greater the chance that one of them has an idea of how to improve alternative energies, or to mitigate the climate effects of carbon emissions. It takes only one person to have an idea that can benefit many.

Plus, the more people on earth, the larger are the markets for new innovations.

Thus, even if the brilliant innovators would be born regardless of population control, their incentives to devote effort toward finding new discoveries and bringing them to the marketplace depend on the size of that marketplace. And it’s clear that incentives matter for innovative activity: That’s why we have a patent system that helps innovators obtain financial rewards for their inventions. Not surprisingly, research has shown that market size stimulates innovative activity, as in the case of pharmaceutical research that is especially intense for conditions that have more victims.

It may take a long time for population growth to either give birth to an inventor brilliant enough, or motivate enough incentives, to have an impact on the climate. But that’s not a reason to turn to population control, because it also takes a long time for population control’s impact to be noticeable.

Although the calculations are inherently uncertain, the value of the additional innovation stimulated by additional population may be significant. In my academic work I have calculated that the value, to the entire marketplace through this channel, of an additional person may be on the same order of magnitude of the value that person places on his own life.

For example, a person who can earn $2 million in his own lifetime may, by his presence in the worldwide marketplace, stimulate innovative activity that is worth a few hundred thousand dollars.

The role of technical change has been repeatedly underestimated. For example, someone a century ago who claimed that the earth could have enough food to support nine billion people (population control advocates now think that the earth’s population can easily get there) would have been considered crazy. But with today’s technology it is easy to see how many billions can be fed. Some of the important solutions to climate change will also come from technological progress.

Housing Price Update

The OFHEO index for July was released today. The housing price data have been showing a housing recovery for a while -- the question is when construction activity will get back to normal.

Spooky

I went by Plum Island several times this summer and have been reading the novel Plum Island, which is about scientists on the island who study germs, viruses -- and how an accident or something sinister could result in human deaths. Unfortunately for a real scientist- from the Univ of Chicago no less -- a scenario like this actually happened. No Plum Island connection, as far as I know.

Housing Construction Update

Housing permits and housing starts in August were higher than they were in any month since November 2008. A genuine housing recovery has to have a normal pace (the 2005 pace was not normal!) of housing construction.

Construction Costs and the Housing Recovery

Copyright, The New York Times Company

Yesterday the Bureau of Labor Statistics released its producer price index for residential construction. Its significant increase from July to August is a good sign for the housing market.

The producer price index for single-unit residential construction measures the average change over time in the selling prices received by domestic producers of materials for houses. The chart below displays the index for each month of 2008 and 2009.


source: Casey B. Mulligan, using data from the Bureau of Labor Statistics

The price index is of economic interest because it is an important determinant of the prices of existing homes. Few people want to pay more for an existing house than they would pay for having one built new. As a result, the housing P.P.I. is an important ingredient in economic forecasts of housing prices. For example, once it was clear that the housing “bubble” was over, it was (part of) the basis for my forecasts last fall of how far housing prices would ultimately fall (see also Edward Glaeser’s post).

Additionally, the housing construction P.P.I. is more amenable to real-time analysis than are the housing price indices. For example, the Bureau of Labor Statistics releases its P.P.I. within about two weeks of the end of a given month, whereas the Case-Shiller index is not released for another two months.

An end to the housing price decline is welcome because low housing prices are the main reason for the extraordinary prevalence of foreclosures.

When housing prices fall, many homeowners owe more on their mortgage than their house is worth (that is, “their home equity is negative”), and even a homeowner with plenty of income can gain financially by letting the bank take his house rather than continuing to pay his mortgage in full. That’s why Stan Liebowitz, a professor at University of Texas, Dallas, found that negative equity was a more important factor than unemployment in causing the foreclosures, and why the researchers John D. Geanakoplos and Susan P. Koniak argued that foreclosures are “stunningly sensitive” to the amount of home equity.

That’s one reason why it was good news yesterday to learn that the housing-materials P.P.I. was greater in August than it was in July. Once housing prices stabilize, homeowners will start to accumulate equity again, and we can eventually close the book on the foreclosure crisis.