Mike Konczal

Roosevelt Institute Fellow

Recent Posts by Mike Konczal

  • JW Mason on Disgorge the Cash

    Apr 21, 2014Mike Konczal

     

    I'm happy to have been part of the editing team on this piece by JW Mason for The New Inquiry's money and finance issue, Disgorge the Cash. It summarizes some of the issues he's been developing at his blog slackwire on the relationship between the financial sector and the real economy. As both an economic matter, with the relationship between corporate borrowing, investments and dividends before and after the early 1980s, as well as a socio-cultural matter of managers and their relationships to the firms they manage, it's fascinating stuff. It also points to a question, one Piketty doesn't touch in his new Capital book, of whether supermanagers who are creating the runaway 1% labor incomes gain should really be thought of more as part of capital income.

    Much of the rest of the finance and money issue is now online, though you should still subscribe.

    From the piece:

    In 1960, there was a strong link between borrowing and investment. A firm that was borrowing $1 million more than a typical firm of that size would usually be investing $750,000 more. [...] Before 1980, there was no statistical relationship between borrowing and payouts in the form of dividends and share repurchases at the firm level. But since then, a clear positive relationship emerged, especially at business-cycle peaks. Firms that borrow more have significantly higher payouts to shareholders. [...] It was a common trope in accounts of the housing bubble that greedy or shortsighted homeowners were extracting equity from their houses with second mortgages or cash-out refinancing to pay for extra consumption. What nobody mentioned was that the rentier class had been playing a similar game longer and on a much larger scale.

    [...]

    At the moment, finance seems to be doing its job well. The idea that corporations will spontaneously socialize themselves looks utopian and naïve. The evolution described by Keynes, Berle and Means, Galbraith, and other theorists of managerialism early in the 20th century had been halted or reversed by its end.
     
    But that doesn’t mean it wasn’t real. Just look at the scale of the financial apparatus required to keep productive enterprises focused on profit maximization, and the fear capitalists have of allowing managers discretion over corporate resources, even when their incentives have been arduously “aligned.” Isn’t it testimony to how tenuous and unnatural production for profit is? In these far from revolutionary times, radicals often fret about the difficulty of transforming the existing organization of production into socialism. But this project is nothing compared with the Sisyphean task faced by the other side, of constantly transforming the existing organization of production into capitalism.

     

    I'm happy to have been part of the editing team on this piece by JW Mason for The New Inquiry's money and finance issue, Disgorge the Cash. It summarizes some of the issues he's been developing at his blog slackwire on the relationship between the financial sector and the real economy. As both an economic matter, with the relationship between corporate borrowing, investments and dividends before and after the early 1980s, as well as a socio-cultural matter of managers and their relationships to the firms they manage, it's fascinating stuff. It also points to a question, one Piketty doesn't touch in his new Capital book, of whether supermanagers who are creating the runaway 1% labor incomes gain should really be thought of more as part of capital income.

    Much of the rest of the finance and money issue is now online, though you should still subscribe.

    From the piece:

    In 1960, there was a strong link between borrowing and investment. A firm that was borrowing $1 million more than a typical firm of that size would usually be investing $750,000 more. [...] Before 1980, there was no statistical relationship between borrowing and payouts in the form of dividends and share repurchases at the firm level. But since then, a clear positive relationship emerged, especially at business-cycle peaks. Firms that borrow more have significantly higher payouts to shareholders. [...] It was a common trope in accounts of the housing bubble that greedy or shortsighted homeowners were extracting equity from their houses with second mortgages or cash-out refinancing to pay for extra consumption. What nobody mentioned was that the rentier class had been playing a similar game longer and on a much larger scale.

    [...]

    At the moment, finance seems to be doing its job well. The idea that corporations will spontaneously socialize themselves looks utopian and naïve. The evolution described by Keynes, Berle and Means, Galbraith, and other theorists of managerialism early in the 20th century had been halted or reversed by its end.
     
    But that doesn’t mean it wasn’t real. Just look at the scale of the financial apparatus required to keep productive enterprises focused on profit maximization, and the fear capitalists have of allowing managers discretion over corporate resources, even when their incentives have been arduously “aligned.” Isn’t it testimony to how tenuous and unnatural production for profit is? In these far from revolutionary times, radicals often fret about the difficulty of transforming the existing organization of production into socialism. But this project is nothing compared with the Sisyphean task faced by the other side, of constantly transforming the existing organization of production into capitalism.

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  • The Unluckiness of the Long-Term Unemployed

    Apr 18, 2014Mike Konczal
    Ben Casselman has a fascinating dive into the long-term unemployment data at the new 538 site. He finds that the long-term unemployed are driven in large part by luck. An unemployed person is more likely to be unemployed for a long period of time when they happen to lose their job at a time of high unemployment. Here's their core chart:

    He also finds that this effect is stronger for those who are unlikely to receive unemployment insurance.

    One comment I had. There's an argument that the long-term unemployed are the weakest employees, those who were fired during the first wave of layoffs that started in 2008. These workers were going to have a hard time finding jobs not based on the labor market but because, to be blunt, they weren't good workers. (One manifestation: Tyler Cowen did a lot with this idea of zero marginal product workers, ignoring that the marginal product of labor is impacted by demand, back in 2011.) Since long-term unemployed workers look a lot like the general unemployment pool, this is thought to be driven by softer, not-quantifiable, worker characteristics.

    If that was the case, then the job losers on the upswing of unemployment, during the first wave of layoffs in 2008 when unemployment was in the 5-8% range, should be more likely to have become a member of the long-term unemployed. They should even be worse than those leaving their job when unemployment was 10% in fall 2009 (which was technically 3 months after the recession ended). But we see a pretty consistent pattern in that chart, which tentatively give evidence that it's not just the initial skill level of the workers driving the level of long-term unemployment.

     

    Ben Casselman has a fascinating dive into the long-term unemployment data at the new 538 site. He finds that the long-term unemployed are driven in large part by luck. An unemployed person is more likely to be unemployed for a long period of time when they happen to lose their job at a time of high unemployment. Here's their core chart:

    He also finds that this effect is stronger for those who are unlikely to receive unemployment insurance.

    One comment I had. There's an argument that the long-term unemployed are the weakest employees, those who were fired during the first wave of layoffs that started in 2008. These workers were going to have a hard time finding jobs not based on the labor market but because, to be blunt, they weren't good workers. (One manifestation: Tyler Cowen did a lot with this idea of zero marginal product workers, ignoring that the marginal product of labor is impacted by demand, back in 2011.) Since long-term unemployed workers look a lot like the general unemployment pool, this is thought to be driven by softer, not-quantifiable, worker characteristics.

    If that was the case, then the job losers on the upswing of unemployment, during the first wave of layoffs in 2008 when unemployment was in the 5-8% range, should be more likely to have become a member of the long-term unemployed. They should even be worse than those leaving their job when unemployment was 10% in fall 2009 (which was technically 3 months after the recession ended). But we see a pretty consistent pattern in that chart, which tentatively give evidence that it's not just the initial skill level of the workers driving the level of long-term unemployment.

     

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  • Not Just the Long-Term Unemployed: Those Unemployed Zero Weeks Are Struggling to Find Jobs

    Apr 17, 2014Mike Konczal

    Leave aside for a moment the difficulty that the long-term unemployed, those who were unlucky and have been looking for a job for more than 52 weeks, have in finding a job. Even those who have been unemployed zero weeks are having trouble finding jobs in this economy. And this is important evidence against the idea that the labor market is doing better than people realize if you just ignore the long-term unemployed.

    Here’s a data point that I’m particularly interested in: how often are employed people going straight to another job, rather than leaving their job and enduring a period of unemployment before finding new work?

    Though most people think of the employed spending some time in unemployment before starting a new job (an idea that was central to the recent theory that quit rates predicted a healthy job market), a substantial number of people move directly from one job to another without ever counting as unemployed. Since our statistics (and most of the economic models) are set up to observe people who are looking for work but are unable or unwilling to accept a job, these steadily employed workers can go missing in the discussion. That’s a shame, because historically they comprise almost half of all those who accept a new job.

    The Rortybomb blog has long been a fan of the job flows data, or the statistics that show who is moving between employment and unemployment and in and out of the labor force. However, the easiest way to access this data didn’t distinguish between those who stayed employed with a single employer and those who stayed employed but moved between different employers.

    Luckily, someone pointed me in the direction of the Employer-to-Employer Flows in the U.S. Labor Market [1], compiled by the Federal Reserve, which breaks out those who move from one employer to another without being unemployed (described as “EE transitions” for the rest of this post). This data is current through the end of 2013.

    If the economy is heating up significantly and the long-term unemployed aren’t capable of taking jobs, then the EE transition rate should be increasing. So how is it doing?

    This is the percentage of the employed who are in EE transition (the results are the same for EE transition as a percentage of the labor force). As we can see, it declined during the crisis and hasn’t recovered even as of 2013.

    Let’s also look at this from a different point of view: what percentage of those taking jobs are currently employed? If the economy was heating up and the unemployed or those out of the labor force couldn't take jobs, we would expect this to increase. Taking EE transitions as a percentage of all those who are transitioning into new jobs, we see the following:

    New hires are increasingly coming from the ranks of the unemployed and those not in the labor force rather than the currently employed. Where the employed were 40 percent in the 1990s, and 35 percent in the pre-crisis 2000s, it's down to 30 percent now.

    Why does this matter? First off, these quits also create a new job opening, which the unemployed can take. There’s a significant labor economics literature that argues that job-to-job transitions are a major driver of wage growth for workers (starting here and continuing to this day, h/t Arin Dube). If the number of people moving directly from one job to another is in decline, that’s a bad sign for wage growth, as well as inflation and monetary policy. This appears to be undertheorized and not discussed enough in academic or policy discussions.

    But why is this happening? The American Time Use Survey hasn’t been able to tell me whether the employed are spending more or less time searching for other jobs since the recession started; the sample size is too small to make conclusive predictions about changes. If potential wage gains are a primary motivation of job-to-job transitions, then lack of wage growth or even inflation could be contributing to less churn in the economy.

    When it comes down to it, the problems of those who aren’t working and want a job are similar to the problems of those who are working but want a new job. As Alan Krueger found in this chart in his recent paper (also see Ben Casselman's chart here), the rate of successful job searches is down not just for the long-term unemployed, but also for the short-term unemployed, when compared to 2007. It appears the same holds true for those with an unemployment duration of zero.

    [1] The page indicates that it was last updated in 2004, or perhaps 2011. But the excel document has data through the end of 2013. Sneaky.

    Follow or contact the Rortybomb blog:

      

    Leave aside for a moment the difficulty that the long-term unemployed, those who were unlucky and have been looking for a job for more than 52 weeks, have in finding a job. Even those who have been unemployed zero weeks are having trouble finding jobs in this economy. And this is important evidence against the idea that the labor market is doing better than people realize if you just ignore the long-term unemployed.

    Here’s a data point that I’m particularly interested in: how often are employed people going straight to another job, rather than leaving their job and enduring a period of unemployment before finding new work?

    Though most people think of the employed spending some time in unemployment before starting a new job (an idea that was central to the recent theory that quit rates predicted a healthy job market), a substantial number of people move directly from one job to another without ever counting as unemployed. Since our statistics (and most of the economic models) are set up to observe people who are looking for work but are unable or unwilling to accept a job, these steadily employed workers can go missing in the discussion. That’s a shame, because historically they comprise almost half of all those who accept a new job.

    The Rortybomb blog has long been a fan of the job flows data, or the statistics that show who is moving between employment and unemployment and in and out of the labor force. However, the easiest way to access this data didn’t distinguish between those who stayed employed with a single employer and those who stayed employed but moved between different employers.

    Luckily, someone pointed me in the direction of the Employer-to-Employer Flows in the U.S. Labor Market [1], compiled by the Federal Reserve, which breaks out those who move from one employer to another without being unemployed (described as “EE transitions” for the rest of this post). This data is current through the end of 2013.

    If the economy is heating up significantly and the long-term unemployed aren’t capable of taking jobs, then the EE transition rate should be increasing. So how is it doing?

    This is the percentage of the employed who are in EE transition (the results are the same for EE transition as a percentage of the labor force). As we can see, it declined during the crisis and hasn’t recovered even as of 2013.

    Let’s also look at this from a different point of view: what percentage of those taking jobs are currently employed? If the economy was heating up and the unemployed or those out of the labor force couldn't take jobs, we would expect this to increase. Taking EE transitions as a percentage of all those who are transitioning into new jobs, we see the following:

    New hires are increasingly coming from the ranks of the unemployed and those not in the labor force rather than the currently employed. Where the employed were 40 percent in the 1990s, and 35 percent in the pre-crisis 2000s, it's down to 30 percent now.

    Why does this matter? First off, these quits also create a new job opening, which the unemployed can take. There’s a significant labor economics literature that argues that job-to-job transitions are a major driver of wage growth for workers (starting here and continuing to this day, h/t Arin Dube). If the number of people moving directly from one job to another is in decline, that’s a bad sign for wage growth, as well as inflation and monetary policy. This appears to be undertheorized and not discussed enough in academic or policy discussions.

    But why is this happening? The American Time Use Survey hasn’t been able to tell me whether the employed are spending more or less time searching for other jobs since the recession started; the sample size is too small to make conclusive predictions about changes. If potential wage gains are a primary motivation of job-to-job transitions, then lack of wage growth or even inflation could be contributing to less churn in the economy.

    When it comes down to it, the problems of those who aren’t working and want a job are similar to the problems of those who are working but want a new job. As Alan Krueger found in this chart in his recent paper (also see Ben Casselman's chart here), the rate of successful job searches is down not just for the long-term unemployed, but also for the short-term unemployed, when compared to 2007. It appears the same holds true for those with an unemployment duration of zero.

    [1] The page indicates that it was last updated in 2004, or perhaps 2011. But the excel document has data through the end of 2013. Sneaky.

    Follow or contact the Rortybomb blog:

      

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  • Is Short-Term Unemployment a Better Predictor of Inflation?

    Apr 8, 2014Mike Konczal

    Alan B. Krueger, Judd Cramer, and David Cho of Princeton recently released a Brookings paper on the state of the labor market titled "Are the Long-Term Unemployed on the Margins of the Labor Market?" Their big headline result is that the long-term unemployed are going to have trouble finding steady work, both as a historical matter and from what we've seen in the Great Recession. It's fascinating work we'll revisit here.

    But what does that mean for the job market right now, with its mix of short-term and long-term unemployed? The second takeaway is that if we only look at short-term unemployment, the economy makes more sense than if we look at total unemployment. As Tim Hartford wrote, this research shows that if "we replotted the Phillips curve['s mix of inflation and unemployment]... using statistics on short-term unemployment... it turns out that the old statistical relationships would work just fine." Some are arguing that we should just focus on short-term unemployment for the moment as an indicator of how the economy is doing.

    Is that the case? Not really. We should be careful with this argument now, because this is really a matter of 2009-2012. Back then, the question was why inflation was as steady as it was given very high unemployment. In 2014 the question is very different: why is inflation so low given high unemployment and the relationship of the past several years? We need to explain a different problem.

    Let's look at a key chart from the Krueger paper (green boxes my addition):

    This is the change in core inflation versus unemployment. (There's a similar dynamic with wage inflation in a different chart.) The left graphic is the change in core inflation versus overall unemployment, and the right graphic is the change versus short-term unemployment. As the paper's authors argue, it's a much tighter relationship if you just look at short-term unemployment. But there are three things to note here.

    First, as flagged in the green box in the left graphic, the outliers are the years 2009-2012. Looking at their wage inflation version of this in particular, the authors note that they get a higher R-squared and better predictive value using short-term unemployment. But replicating this chart (data), if you simply take out 2009-2011, you also end up with the higher R-squared and better predictive value.

    More importantly, as a second matter look at where we are now via the 2013 data point. The total unemployment number for 2013 is right on the line in the left graph. However, as we can see from the green circle on the right, using short-term unemployment shows inflation much lower than anticipated. This is not surprising; one of the more important economic stories of 2013 was the collapse of inflation. Note that if the labor market were actually getting much tighter, inflation should have been increasing during this time period. More broadly, if the problem were the preponderance of long-term unemployed in the general labor market, we wouldn't expect 2013 to go into freefall and hop over the trendline as it did.

    I'm very interested in why we didn't collapse into deflation from 2009 to 2011. I imagine the Fed has something to do with it. But as a third point I'd be a little cautious about using just short-term unemployment during that time as an important indicator about the labor market, as job separations collapsed during the crisis. A low short-term unemployment rate reflects people simply not leaving their jobs more than it reflects the idea that the economy was doing better than we'd expect.

    But this question is also a historical one. Krueger and his co-authors acknowledge this, using phrasing like "since 2009" as the basis of their paper. But other people might not catch this, and assume that the short-term unemployment rate is crucial for right now. But that doesn't reflect our current situation of low inflation, a falling rate of long-term unemployment, and an unemployment rate that is going to be stuck in the mid-6% range for some time. We shouldn't use a way of adjusting data to examine what was going on in 2010 to argue there's less slack than there actually is out here in 2014.

    Follow or contact the Rortybomb blog:

      

    Alan B. Krueger, Judd Cramer, and David Cho of Princeton recently released a Brookings paper on the state of the labor market titled "Are the Long-Term Unemployed on the Margins of the Labor Market?" Their big headline result is that the long-term unemployed are going to have trouble finding steady work, both as a historical matter and from what we've seen in the Great Recession. It's fascinating work we'll revisit here.

    But what does that mean for the job market right now, with its mix of short-term and long-term unemployed? The second takeaway is that if we only look at short-term unemployment, the economy makes more sense than if we look at total unemployment. As Tim Hartford wrote, this research shows that if "we replotted the Phillips curve['s mix of inflation and unemployment]... using statistics on short-term unemployment... it turns out that the old statistical relationships would work just fine." Some are arguing that we should just focus on short-term unemployment for the moment as an indicator of how the economy is doing.

    Is that the case? Not really. We should be careful with this argument now, because this is really a matter of 2009-2012. Back then, the question was why inflation was as steady as it was given very high unemployment. In 2014 the question is very different: why is inflation so low given high unemployment and the relationship of the past several years? We need to explain a different problem.

    Let's look at a key chart from the Krueger paper (green boxes my addition):

    This is the change in core inflation versus unemployment. (There's a similar dynamic with wage inflation in a different chart.) The left graphic is the change in core inflation versus overall unemployment, and the right graphic is the change versus short-term unemployment. As the paper's authors argue, it's a much tighter relationship if you just look at short-term unemployment. But there are three things to note here.

    First, as flagged in the green box in the left graphic, the outliers are the years 2009-2012. Looking at their wage inflation version of this in particular, the authors note that they get a higher R-squared and better predictive value using short-term unemployment. But replicating this chart (data), if you simply take out 2009-2011, you also end up with the higher R-squared and better predictive value.

    More importantly, as a second matter look at where we are now via the 2013 data point. The total unemployment number for 2013 is right on the line in the left graph. However, as we can see from the green circle on the right, using short-term unemployment shows inflation much lower than anticipated. This is not surprising; one of the more important economic stories of 2013 was the collapse of inflation. Note that if the labor market were actually getting much tighter, inflation should have been increasing during this time period. More broadly, if the problem were the preponderance of long-term unemployed in the general labor market, we wouldn't expect 2013 to go into freefall and hop over the trendline as it did.

    I'm very interested in why we didn't collapse into deflation from 2009 to 2011. I imagine the Fed has something to do with it. But as a third point I'd be a little cautious about using just short-term unemployment during that time as an important indicator about the labor market, as job separations collapsed during the crisis. A low short-term unemployment rate reflects people simply not leaving their jobs more than it reflects the idea that the economy was doing better than we'd expect.

    But this question is also a historical one. Krueger and his co-authors acknowledge this, using phrasing like "since 2009" as the basis of their paper. But other people might not catch this, and assume that the short-term unemployment rate is crucial for right now. But that doesn't reflect our current situation of low inflation, a falling rate of long-term unemployment, and an unemployment rate that is going to be stuck in the mid-6% range for some time. We shouldn't use a way of adjusting data to examine what was going on in 2010 to argue there's less slack than there actually is out here in 2014.

    Follow or contact the Rortybomb blog:

      

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  • Money Issue of The New Inquiry is Out

    Apr 8, 2014Mike Konczal

    I helped edit (curate might be a better word) the latest New Inquiry issue on Money and Finance. Their editor Robert Horning wanted to get some of the vibe of the older financial blogs, when the thing was still a wild west, and so we got a ton of our favorite old-school finance writers like Steve Waldman, Izzy Kaminska, and the Epicurean Dealmaker to contribute. I also helped edit a good explainer of MMT from Rebecca Rojer, and a definitive "disgorge the cash" piece on the rentier takeover of the economy by JW Mason, both which are definitely worth your time. I have my own piece in the article, now also online, about buying the future.

    These pieces will eventually be rolled out and available online over the next month, but for now you can read it by subscribing. Hope you check it out!

    I helped edit (curate might be a better word) the latest New Inquiry issue on Money and Finance. Their editor Robert Horning wanted to get some of the vibe of the older financial blogs, when the thing was still a wild west, and so we got a ton of our favorite old-school finance writers like Steve Waldman, Izzy Kaminska, and the Epicurean Dealmaker to contribute. I also helped edit a good explainer of MMT from Rebecca Rojer, and a definitive "disgorge the cash" piece on the rentier takeover of the economy by JW Mason, both which are definitely worth your time. I have my own piece in the article, now also online, about buying the future.

    These pieces will eventually be rolled out and available online over the next month, but for now you can read it by subscribing. Hope you check it out!

    Share This

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