Mike Konczal

Roosevelt Institute Fellow

Recent Posts by Mike Konczal

  • Getting Our Arms Around Labor Force Participation With Two Fed Studies

    May 7, 2012Mike Konczal

    The short answer is: half, U-5 probably tells you everything you need to know, and women are going to play the most interesting role as it evolves.  Now for the question and longer answer....

    The short answer is: half, U-5 probably tells you everything you need to know, and women are going to play the most interesting role as it evolves.  Now for the question and longer answer....

    The average labor force participation rate went from an average of 66% in 2007 to a 2011 average of 64.1%.  Last month it was 63.6%.  As a reminder, the labor force is the employed and the unemployed (those without a job who are actively looking for one) added together.  When this number decreases it means that there are less people working, though it doesn't increase the unemployment rate (because, by definition, those leaving the labor force are no longer looking for a job).  Let's try to get our arms around the latest econoblogosphere debate: how much is the decrease in labor force participation a type of shadow unemployment?

    To recap, there's a handful of longer-term trends to watch in the economy. When Ben Bernanke was asked about labor force participation at his most recent press conference, he responded that labor force participation was dropping because the economy was (my bold) "no longer getting increased participation from women... society ages and also, for other reasons, male participation has been declining over time."  However a lot of it "represent cyclical factors, much of it is young people, for example, who presumably are not out of the labor force indefinitely, but given the, uh, weak job market, they are going to school or doing something else, rather than, than working."

    But how to get a good estimate of what is cyclical - related to the economic downturn - and what is structural and the result of longer-term trends - what would have happened without the Great Recession?  First off, what's the largest number possible?  Evan Soltas (a new blogging superstar you should be reading) takes the labor force participation rate of 2007 and projects it to now, and finds 5.8 million people missing.  This would give us an unemployment rate of around 11.4 percent, but would also exclude the longer-term trends.  Greg Ip, looking at CBO numbers, finds 5 million people missing.

    At the other end of the spectrum are those who would think that the unemployment rate is capturing all we need to know.  If someone really wants a job, they would look for one, and there's nothing interesting policy-wise in this information.  At 8.1% unemployment there's still plenty of slack in the labor market. (There's an unemployment crisis at 8.1% unemployment!)  The answer of the "true" unemployment rate should be somewhere in the middle.

    Chicago, Kansas City

    Daniel Aaronson, Jonathan Davis, and Luojia Hu of the Federal Reserve Bank of Chicago just put out a paper - Explaining the decline in the U.S. labor force participation rate - that shows:
    the current LFPR [Labor Force Participation Rate] is roughly 1 percentage point lower than our estimated trend rate (the LFPR consistent with the contemporaneous composition of the work force and an economy growing at its potential)....As of late 2011, the actual LFPR for 16–79 year olds is 1.1 percentage points below trend LFPR...Indeed, over the 2008–11 period, we find that only one-quarter of the 1.8 percentage point decline in actual LFPR for 16–79 year olds can be attributed to demographic factors.
    Labor force participation is 1.1% below the trend of where it is supposed to be.  They concluded this after creating a model of 44 combinations of gender, education and age to estimate projected changes, which is then compared to actual 2011 labor force participation rates.  Two-thirds of the long-term decline in LFPR is from demographics, and the remaining third is due to other effects, especially gender and education.
     
    Meanwhile, Willem Van Zandweghe has a paper from the Federal Reserve Bank of Kansas City, published in the first quarter of 2012, titled Interpreting the Recent Decline in Labor Force Participation.  They, strikingly, come to the same conclusion as the Chicago researchers.
     
    Zandweghe breaks out a decomposition technique to seperate out the cylical from the long-term elements of labor force participation movement.  He finds that that "[t]he Beveridge-Nelson decomposition attributes 1.1 percentage points of this decline (58 percent) to the cyclical downturn. Long-term trend factors, such as demographics, account for the remaining 0.8 percentage point of the decline (42 percent)."  1.1% percent is cyclical. That 1.9 percentage point overall drop reflects the drop from the 66% average in 2007 to the 64.1% average in 2011.
     
    Gender plays a role in this analysis as well.  A slight majority of men's decline in labor force participation is due to long-term trends; virtually all of women's decline is the result of the cyclical downturn in the recession.  "The average annual LFPR of men fell 2.8 percentage points from 2007 to 2011, of which 60 percent was due to a decline in trend participation...Women’s average annual LFPR fell 1.2 percentage points from 2007 to 2011. The decomposition attributes essentially all of this decline to the cyclical downturn in the labor market."
     
    1.1% Means...
     
    To lose 1.1% of the labor force means that we are missing roughly 2.7 million people.  Since around half of the total loss is cylical, the 2.7 million matches half of the total 5 - 5.8 million that Soltas and Ip found above, which is a good sanity check.  If we add 2.7 million people to the unemployed, that gives us a current unemployment rate of 9.7%.
     
    The number of people the BLS lists as "not in the labor force" but also lists as "persons who currently want a job" has increased by 1.7 million.  Indeed U-5 unemployment, which takes normal unemployment and adds in "discouraged workers, plus all other persons marginally attached to the labor force," sits at 9.5%.  Discouraged and marginally attached workers, and the U-5 unemployment rate that incorporates them, are designed to give us a measure of those not in the labor force who want to come back into the workforce but have given up looking.  Perhaps this will be our best measure going forward of this phenomenon?
     
    Here's a chart from the Kansas City paper of how the unemployment rate looks forecasted:

    Since so much of the cylical elements of the labor force participation is driven by female labor choices, those will be key in understanding how this evolves.  Catherine Rampell wrote last December about how young women dropping out of the labor force "are not dropping out forever; instead, these young women seem to be postponing their working lives to get more education."  We could see a wave of much more highly educated women enter the labor force further down the road.  And the New York Fed's blog argued that "a key factor for future aggregate labor force participation is the behavior of married women," and whether or not they look to re-enter the labor force. In general, and likely for men, as both the Kansas City paper and Ryan Avent note, many of these workers are going into disability.

    Overall I agree with what Ryan Avent argues here.  If we were hitting constraints, we'd see job openings and prices, especially labor costs, shooting upwards, which we do not see.  I'm not sure what policy lessons people are drawing from these missing workers, but they amplify the case that expansionary policies, from fiscal to monetary to debt workouts, are necessary and urgent.

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  • The Avengers Movie, and Time vs. Space in DC and Marvel Comics

    May 4, 2012Mike Konczal

    Avengers is a fantastic movie.  You should see it.  The Thor and Captain America characters are far better than they were in their own movies, and Mark Ruffalo as Banner is the best we'll likely see (the Hulk steals every scene he is in).  Here's Alyssa Rosenberg's epic review, ‘The Avengers’ Brings Superhero Movies to Another Level.  In honor of the Avengers, let's do a comic book related post.

    Avengers is a fantastic movie.  You should see it.  The Thor and Captain America characters are far better than they were in their own movies, and Mark Ruffalo as Banner is the best we'll likely see (the Hulk steals every scene he is in).  Here's Alyssa Rosenberg's epic review, ‘The Avengers’ Brings Superhero Movies to Another Level.  In honor of the Avengers, let's do a comic book related post.  No movie spoilers, except in the last paragraph, which will have a warning.

    Specifically I want to examine the use of space and time in Marvel versus DC comics.  Recently DC rebooted their comic line.  All their titles stopped, and most were relaunched with an issue #1.  Continuity was thrown for a loop, with some issues starting at the beginning of their hero's career and others happening much later.  I stopped reading DC right before that, but my overall sense is that it is a mixed bag.

    I was surprised by this move, as I always thought the deep time dimension to DC comics was what animated it and gave it a much different tone than Marvel comics, and this more or less threw that away.  To me, the dominant horizon for Marvel comics is space, as in location, and DC comics is time, as in history.  Marvel's comics were best read as unfolding across their Earth, in multiple locations, with the challenge as following how the different spaces overlapped and conflicted.  For DC, it was about mining the deep history and overlapping continuity, constantly in flux, to make sense of where the characters had come from and how they were engaging each other.

    The two major, era-defining runs on Marvel were the Chris Claremont run on X-Men, and now Bendis' run on Avengers.  They both set the tone for how Marvel operated.  The thing I remember most about Claremont's X-Men, especially once the original characters spun off into X-Factor, is how the characters were always split up in different locations.  There was a team off in Australia. There was a group off in New Orleans doing other things. There were people at the mansion and in outer space and on the Moon.  Getting people in the same space - would they all make it to Muir Island to fight the Shadow King? - was always a source of dramatic tension.  But as a fan, keeping track of the continuity of who was where was always a task, and the geek fun was trying to keep a mental map to make sense of it as it unfolding each week.

    Bendis' Avengers, especially after the Civil War storyline, works the same way.  You had to know which characters are underground, who is staying with what team, and who is chasing and fighting with whom.  Like the X-Men at their height, you really need to follow several titles to keep track of who is doing what where.  Their big events are all about this as well.  Most of Siege takes place across an afternoon of battle, and it is just a matter of getting all the characters in place for the action to take place.  Fear Itself requires Tony Stark to go to one place, and Thor to bump into the Hulk and the Thing, and then everyone to get to Asgard, and so on.

    DC Comics never had that issue - instead they exist across time.  To really make sense of the stories, especially after Geoff Johns took over the world, you had to engage continuity across time.

    I think it's safe to say that the Ron Marz run on Green Lantern, which turned Hal Jordan into the villian Parallax, introduced Kyle Raynor, then immediately put his girlfriend in a refridgerator and made it so Kyle's ring could impact the color yellow, is a low point in DC Comics history.  Johns not only rebooted Green Lantern, but turned it into a major comics achievement by fitting all those items into continuity.  While lesser writers would have ditched the old story, or other comic universes would ignore huge parts of it just to make it fit however they wanted (who is Xorn again?), part of the joy of the Green Lantern reboot was watching Johns make it all work together.  When you geek out with DC comics, the continuity to fixate on is going to be how the story exists throughout time.

    The revamping of the comic universe that happened in DC around this time amplified this - creating the JSA (Justice Society of America) as a dual-generation comic alongside the Justice League.  Grant Morrison's run on Batman gloried in pulling up every arcane reference to old Batman stories. James Robinson's fantastic Starman run was all about nostalgia and the relationship between Golden Age and current day comics.  DC's big events follow this as well.  The Crisis events usually are about the various reworkings of the history - what universes are in, and what universes and stories are out.

    (There are plenty of pieces of evidence against this division - Bendis' excellent Illuminati comics series, which is all about revisiting major events in the Marvel timeline, for instance.  And practically, DC's longer timeframe and its purchasing of numerous comic titles that had to be worked into continuity add to this, as well as the fact that the headline characters move at such speeds it is assumed they can get anywhere quickly.)

    Why does this matter?  As the comic book audience ages, and as the fandom is done online (with the ability to discuss every esoteric detail of every comic and being available to all), there's a big advantage in going complicated for the comic book titles.  By having to read several titles, or having had to have read a deep backlog, it boosts sales. But it also creates a more complete universe, which is an excellent thing for the fans. I'm surprised DC tossed their advantage in this realm on a gimmick.

    AVENGERS SPOILER:  Speaking of deep history, I can't believe they put Thanos in as the major baddie at the end.  After the midnight showing, several teenagers were trying to figure out who that was.  I can tell I'm old because I really wanted to go: "sit down, son. When I was your age, actually when I was younger than you, there was this comic called Infinite Gaunlet.  After the first issue came out, everyone scrambled to find the entire backstory, from Thanos Quest to all the Silver Surfer issues where he chases Thanos around (and the latter ones, including that one with the spiffy reflective cover). It was the greatest comic ever." In other words, the one bone they threw to fans in the closing credits was perfectly pitched to obsessive comics readers in their early 30s.  Well played.

     

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  • Job Numbers Friday: Looking to the Secondary Measures

    May 4, 2012Mike Konczal

    April's job numbers were disappointing, but they'd look even worse if we accounted for those who have dropped out of the job market.

    Today featured a lackluster set of job numbers. Payroll employment was up 115,000 jobs in April, and the unemployment rate went down to 8.1 percent from 8.2 percent. Government jobs were down 15,000, including 5,200 state and local education workers.

    April's job numbers were disappointing, but they'd look even worse if we accounted for those who have dropped out of the job market.

    Today featured a lackluster set of job numbers. Payroll employment was up 115,000 jobs in April, and the unemployment rate went down to 8.1 percent from 8.2 percent. Government jobs were down 15,000, including 5,200 state and local education workers.

    There are three ways of parsing the jobs numbers. One way is to focus on the jobs created -- where are they, what industries they're in, and how much wage growth and hourly gains there are. The second is to focus on unemployment -- who is unemployed, how long have they been unemployed, and what characteristics do they have? And the third is to look at secondary unemployment characteristics, the numbers that try to interrogate the boundaries between the unemployed and those "not in the labor force."  We'll spend some time in the next week talking about how to think of this third category.

    For instance, is this even an interesting question? Matt Yglesias makes a case that it is overblown, arguing that it is really catching longer-term patterns and needs to be put in the context of the global economy. I agree in the sense that I think 8.1 percent unemployment is sufficient for serious reaction. But I think digging into this is important for both economic and political reasons. We'll start a reply with this post.

    It is the case that the size of the labor force hasn't grown (as raw number of people, not a percentage) since the recession started. Though we don't know what the "true" size of the labor force should be at full employment, it should be a bigger number than it was in 2007. That's a problem, because conventional unemployment can't capture that.

    And it is still true that the unemployed are more likely to drop out of the labor force than find a job. This is a brand-new phenomenon in the post-Great Depression economy.

    Though the drop-out rate is within a longer historical range as a percentage of the unemployed (which is in the chart above), the number of unemployed people doubled during this recession. This channel is undertheorized in normal economics -- why would someone looking for a job decide to stop looking, given that they were willing to look at one point? For those concerned about the long-term costs to our economy of hysteresis, this is a problem. We aren't seeing an uptick in those moving from "not in the labor force" to unemployed, and thus no increase in unemployment, which we had wondered if we were going to see as the economy picked up.

    Many of those who are "not in the labor force" want a job but are declining to actively search for them. This number went up in the recession and is hovering at a high rate:

    This is the categorization of "want a job now," but "U-5" unemployment also captures some of these changes. That additional 1.5 to 2 million unemployed workers would give us a higher unemployment rate. It isn't increasing in the past year, but it isn't decreasing either.

    An aging population should create decline in the employment-to-population (the percentage of people working) and labor force participation (the percentage of people working or looking for work) rates. How does this look when we just look at 25-54 year olds? Here is their labor force participation rate:

    And their employment-to-population ratio:

    There's a question as to what extent the recession is speeding up already occuring trends (retirements in an aging population, increased schooling, fewer men working) or has caused these trends to happen (or at least overshoot) as a result of being away from full employment. But retirement and schooling is less of an issue in the 25-54 year old range, and yet we see dramatic results here. Will these go back to their previous levels? Probably not. But I believe they'd go back at least a little at full employment. And that needs to be accounted for.

    Mike Konczal is a Fellow at the Roosevelt Institute.

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  • More on the Case for the Public University as a Public Option

    May 3, 2012Mike Konczal

    Josh Barro has an editorial at the Daily, Making U. Pay, about the college affordability cost crisis.  Barro:

    Josh Barro has an editorial at the Daily, Making U. Pay, about the college affordability cost crisis.  Barro:

    What the University of Florida (along with every other American college and university) really needs is cost discipline...Colleges still need to employ a lot of highly skilled workers, and college costs are tied to their wages, which rise faster than inflation...colleges and universities have failed to mitigate this phenomenon. For example, over the last few decades, the typical public four-year college has seen a sharp expansion of its support and managerial staff — from 5.5 per 100 students in 1987 to 7.5 per 100 in 2007...

    Unfortunately, consumers do not have the necessary incentives to impose cost discipline in the market. The perceived necessity of a college degree to find a middle-class job gives students few options but to pay up...State legislatures, too, should put pressure on public colleges and universities not to increase staffing relative to student populations, and to respond to budgetary strains with cost control instead of tuition hikes or reductions in enrollment...Colleges and universities should take greater advantage of technological advances that could finally improve productivity in the education sector, such as distance learning and video instruction...

    These reforms, different though they are, have one aim in common: creating incentives for all actors in the market to make higher education not just cheaper, but more efficient. That may sound unromantic, but it’s necessary to maintain educational opportunity for all.

    I agree with most of the piece.  Barro doesn't take his argument in this direction, but, with the risk of dragging Josh into a social democratic quicksand pit, it's useful to reframe this discussion as one of reclaiming a "public option" in higher education.  Much of the discussion on the technical efficiency of the public provisioning of merit goods focuses on scale and compulsion, which is relevant for higher education, but there's also advantages in cost control and baseline quality.  By holding down tuition, the public university can act as a check on runaway price inflation in the private university market.  Considerations about dynamic efficiency - improvements in quality - seem not as relevant here in the formal education market: private sector tuition is exploding as fast as public tuition.  If we are concerned that boosting demand through price subsidies is captured by incumbent suppliers, then boosting access through reducing tuition on public universities should negate those rents.

    Dynamic efficency is very important when it comes to the online and future sectors of higher education.  However public options help here as well: having a strong baseline of quality is important for vetting the actual efficiency improvements of these new institutions.  Public options solve a certain type of informational problem.  If prices are lowered, it can be difficult for the government and citizens to tell if it is because market innovations have allowed for lower cost production or because they are providing services of a cheaper quality.  The private market is more incentivized to provide new benefit options and offer greater flexibility when they have to compete against a baseline product.  This creates the incentives mentioned above, but these incentives work more towards actual quality improvements instead of rent-seeking when they are competing against a public baseline.  We know for-profit schools are a bad deal because they statistically underperform public community colleges while having larger debt burdens.  Online education at California looks to have equally high drop-out rates. This was part of the important intellectual firepower over the debate on "vanilla products" that erupted during the early parts of Dodd-Frank, brought over to the education sector.

    Tim Noah wondered to Matt Yglesias if we should impose cost controls on colleges; I think we should instead do what we know has worked - make sure a public option is available to all, and have a private market develop alongside it, filling in the efficiency gaps wherever they are.  I forgot to link to this, but Aaron Bady had a powerful defense of the California Master Plan, the mid-century public higher education model, when we did a bloggingheads a few weeks ago:

     

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  • A Majority of Those Who Claim EITC Are on it for Less Than Two Years

    May 2, 2012Mike Konczal

    Here's a datapoint I was surprised to learn. From a footnote by Bob Greenstein of CBPP, there's a paper titled 

    Here's a datapoint I was surprised to learn. From a footnote by Bob Greenstein of CBPP, there's a paper titled Income Mobility and the Earned Income Tax Credit: Short-Term Safety Net or Long-Term Income Support, by Tim Dowd and John B. Horowitz.

    Is the safety net a hammock?  And is the system fundamentally broken if some 40 percent of American don't pay an income tax? This is the brunt of the conservative attack on the welfare state.  As Paul Ryan notes, his plan will make sure the government doesn't "turn the safety net into a hammock that lulls able-bodied people to lives of dependency and complacency, that drains them of their will and their incentive to make the most of their lives." Ryan's plan is focused on cutting spending through the tax code.  Most tax code spending benefits the top 20 percent of Americans, with one exception - the set of refundable credits including the Earned Income Tax Credit (EITC).  Those mostly go to those in the bottom 40 percent of Americans.  If you have the concerns mentioned above, the EITC is the place you'd cut.

    But does the EITC represent a "hammock," a permanent class of the poor living lives of "depenency and complacency"?  For one, EITC is connected to those who work, so one would think that it would be excluded from the assault on the welfare state.  But beyond that, it appears that those claiming EITC are people going in and out of working poverty with a surprising turnover frequency.  From the Dowd/Horowitz paper (my bold):

    Sixty-one percent have spells of one or 2 years. However, at the same time, we find that 20 percent of EITC recipients starting a spell, conditional on observing the taxpayer in 1989, claim the credit 5 or more years. Therefore, for some taxpayers, the EITC acts as a temporary safety net during periods of either anticipated or unanticipated income or family structure shocks. But the EITC also acts as a long-term mechanism of providing assistance to taxpayers with children who are entrenched in the lowest- income brackets.

    Indivar Dutta-Gupta at CBPP has more on the study, also noting that (my bold):

    The EITC goes to working people — the overwhelming majority of them families with children — with incomes up to roughly $49,000.  Earlier unpublished research from Dowd and Horowitz found that EITC users pay much more in federal income taxes over time than they receive in EITC benefits.  Taxpayers who claimed the EITC at least once during the 18-year period from 1989 through 2006 paid several hundred billion dollars in net federal income tax over this period, after subtracting the EITC and any other refunds.

    Dowd and Horowitz’s new study also found that EITC use is highest when children are youngest — which is also when parents’ wages are lowest.  (Working parents’ wages rise, on average, as their children grow up.)  This finding is particularly important given the importance of income for young children’s learning and the evidence that poverty in early childhood may reduce children’s earnings as adults.

    Rather than a permanent class of non-taxpayers, EITC users do, in fact, pay more in federal taxes over time than they get in EITC benefits, which represents how many of them move in and out of working poverty over the course of several years.  The study finds that mobility is lower on the whole for this group, which makes a safety net even more of a necessary thing.  But perhaps we can cut with the hammock language, and focus on the metaphor of a trampoline, providing people much needed support when there's a sudden shock to the economy or their lives that drops their ability to provide for themselves, and also a mechanism that promotes the kind of risk-taking we want in our society.  The question is how to make that stronger.

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