Friday, September 30, 2022

Why Are Companies Still Hiring When GDP Is Shrinking?

Many employers say they continue to struggle with staffing shortages

By Sarah Chaney Cambon of The WSJ. This ties in with Wedneday's post If there are jobless recoveries can there also be jobful recessions? (Okun’s Law & Creative Destruction)

Excerpts from The WSJ article:

"Many employers say they continue to struggle with large staffing shortages that built up during the pandemic and are reluctant to cut head count. In many cases, they are still hiring. 

“I don’t think we’ll see mass layoffs,” said James Knightley, chief international economist at ING. “We are going to see companies prefer to hoard their labor rather than do a quick fire and then rehire because the challenges of hiring right now are incredibly intense.”"

"Some economists say the scars of the past year’s shortages—including the huge expenses of hiring and recruiting, combined with high employee turnover—could leave companies more hesitant to lay off workers if the economy falls into a mild recession. They contend that companies never fully met their hiring needs during the recovery and that businesses will likely pull openings, which are at historic highs, before they resort to cutting jobs.

“You can’t lay off what you didn’t hire,” said Ron Hetrick, senior economist at Lightcast, a labor-market analytics firm. There are “a number of industries out there that are like, ‘We’re still waiting to hire. We never even got to enjoy the party when it started.’ ”"

"Some large companies, including Goldman Sachs Group Inc., Wayfair Inc. and Snap Inc., have recently announced or signaled layoffs, but they are outnumbered by companies saying that labor shortages are crimping sales and production."

"Layoffs and other involuntary discharges, at 1.4 million in July, were about 20% below their average monthly level in 2019, when GDP was growing more quickly."

"At their meeting last week, Fed officials projected the unemployment rate would rise to 4.4% in the fourth quarter of next year, from 3.7% in August. The only times the rate has increased that much is in or around recessions—but it would be relatively small by historical standards. In post-World War II recessions, the unemployment rate rose an average of 3.8 percentage points, with a range of 1.5 points in 1980 to 11.2 points when Covid-19 hit in 2020.

Amy Crews Cutts, chief economist at AC Cutts & Associates LLC, forecasts a sharper rise in unemployment. She expects the jobless rate to exceed 5% by the end of next year. The Fed’s aggressive interest rate increases are likely to hurt demand and employment, starting with the housing market, she said.

Over the past seven decades, payrolls and economic output have typically fallen within two quarters of the start of a recession.

The 1973-75 recession was a notable exception. At the time, inflation was rising swiftly amid an oil-price shock, provoking the Fed to raise interest rates. The recession began in November 1973 as output declined, but employment kept growing and then held steady for a total of about a year. The job market eventually buckled, with payrolls declining by about 2.5% between October 1974 and the spring of 1975.

Today’s unusual labor landscape can in part be traced to decisions made at the start of the pandemic. Economists Robert J. Gordon and Hassan Sayed found that companies in sectors like construction, utilities and mining laid off too many workers during the 2020 lockdowns. With employment falling faster than sales, productivity—output per hour—jumped.  

As the economy reopened, the reverse occurred. Hiring outpaced sales, and productivity fell. That dynamic became especially acute this year. U.S. nonfarm labor productivity fell at a seasonally adjusted annual rate of 4.1% in the second quarter from the prior quarter, the Labor Department said. It followed a drop of 7.4% in the first quarter, the sharpest fall in more than 74 years."

"Employers are also coping with turnover. Nonfarm payrolls, which fell by nearly 22 million at the beginning of the pandemic, surpassed their prepandemic peak in August. That means monthly job growth is set to fade, according to economists. But even employers not seeking to raise head count have to keep hiring to fill vacancies caused by historically high rates of turnover. In July, 2.7% of workers quit their jobs, up from 2.3% in February 2020, when the jobless rate matched a half-century low."

"Businesses run the risk of hiring too many workers. Some large companies that bulked up their workforces in recent years are now seeking to downsize some of their operations."

"The tight labor market is a boon to workers. Job switchers reaped annual pay increases of 8.4% in August, averaged over three months, up from a 5.8% annual rise at the start of this year, according to the Federal Reserve Bank of Atlanta."

"Brisk wage gains ultimately might not last because they’re being fueled by tight labor markets. The Federal Reserve worries such high wages will keep inflation pressures elevated. 

Laurence Ball, an economics professor at Johns Hopkins University, expects the interest-rate increases to broadly hurt the labor market and economy in 2023, after the Fed’s initial rate increase in the spring.

William Spriggs, chief economist with the AFL-CIO, said the Fed’s interest-rate increases have already started to hurt parts of the labor market. The unemployment rate for Black workers has risen recently while their labor-force participation has declined. Further, the jobless rate increased in August among Hispanic workers, who are vulnerable to the construction slowdown, Mr. Spriggs said in a September panel on the employment outlook hosted by the Organization for Economic Cooperation and Development.

Mr. Spriggs expects the Fed’s continued rate increases will inflict further damage, undoing the widespread labor-market gains that stemmed from a historically fast rebound.

“This was the strongest recovery we’ve ever had,” Mr. Spriggs said. “The labor market is healthy, but what the Fed is doing right now is exceedingly dangerous.”"

Thursday, September 29, 2022

Looks Like Some Pretty Good Capitalists Run The Congress

 This is actually a post from 2009. But I thought it worth sharing again.

Go to Policy, portfolios and the investor lawmaker: As stock ownership rises in Congress, experts warn of potential ethics concerns from the Washington Post this past week.

Most members of the House of Representatives own stock. The article says "The investments increasingly put lawmakers in the position of voting or advocating on matters that could affect their personal wealth, whether the lawmakers realize it or not."

Politicians who rarely agree on anything might be found to be voting for the same bill if it matters to their pocket book. They are supposed to report what they own but the drag their feet and the records are not very well computerized, so they are harder to analyze. And they are good at this investing stuff. From 1985-2001, the legislators beat the market by .55 basis points a month. In a year that means 6.6 percentage points above the market.

In that time, the market (DJIA) gained just a bit under 1% a month (from 12-31-85 to 12-31-2001). It went from 1,546 to 10,021. So, if you had $1,546 in the market it became worth $10,021. But, if you were a member of Congress, it rose about 1.5% a month and you would have ended up with $26,970. Each dollar in the market grew into $6.48 while for the lawmakers it grew into $17.44.

"The researchers, whose findings were presented at a congressional hearing in July, said the statistics suggest that those unusual returns must be based on lawmakers' access to "government and important social contacts.""

But legislators acting on their self interest is not new. Charles Beard wrote about this in his book An Economic Interpretation of the Constitution of the United States. He argued that self-interest was a big force in how the framers wrote the constitution.

In the 1950s, Forrest McDonald We the People : The Economic Origins of the Constitution, in attempt to refute Beard. But more recently, economic historian Robert A. McGuire wrote a book called To Form a More Perfect Union: A New Economic Interpretation of the United States Constitution. He used modern statistical analysis to show that the Beard thesis may be legitimate.

My students might recall something like this that I talk about on the first day of the semester. Congressmen in the early 1790s voted on the "Funding and Assumption Act" based on how much money they would receive if that bill passed. The bill paid back all of the debts from the Revolutionary War at full value (they were not getting paid back before the Constitution was passed because under the Articles of Confederation all states had to agree to a tax increase-this did not happen much so taxes were never raised to pay back the money the government borrowed to finance the war). But under the Constitution if both the House and the Senate passed a tax increase and the president signed it, it became law.

The debts were securities or bonds. Some congressman owned them. I found how much about half the congressmen owned in these bonds from McDonald's book. The ones who voted yes on the bill had an average of about $6,000 while the ones who voted no had about $700. So it is possible that money influenced the vote. 

Here is a passage from John Spencer Bassett's book about the "Funding and Assumption Act" The Federalist System, 1789-1801:

"All the speculating class, in Congress and out of it, were zealously in favor of the scheme; and while it was till being debated they were trying to by all the means known to their class to buy up, even in the remote parts of the country, the old bonds at the depreciated values."
Here are they guys who voted yes and their dollar value of their bond holdings:

BURKE 5252
CLYMER 14000
GALE 4252
GERRY 50000
IZARD 20865
KING 10000
MORRIS 11000
READ 341
STRONG 10903
WHITE 1619

Now the no votes

FEW 640

Wednesday, September 28, 2022

If there are jobless recoveries can there also be jobful recessions? (Okun’s Law & Creative Destruction)

See Weak Growth, Tight Job Markets Are a Global Phenomenon: Economists cite aging populations and relatively low immigration as factors that became more pronounced during the pandemic by Tom Fairless and Megumi Fujikawa of The WSJ. Excerpts:

"Talk of a “jobful recession” has centered on the U.S., where payrolls grew by more than half a million in July and the unemployment rate declined to its prepandemic low of 3.5% even as economic output contracted in the three months through June."

"Unemployment and growth usually show a predictable relationship known as Okun’s Law, named for the Yale University economist Arthur Melvin Okun, who first proposed it in 1962. In the U.S., Okun’s law predicts that a 1% decline in output below its potential causes an increase in unemployment of half a percentage point.

However, that relationship can shift depending on factors such as workers‘ output per hour and labor-force growth, said Laurence Ball, an economics professor at Johns Hopkins University. If there are fewer workers and job seekers, the labor market can remain tight even if growth is weak.

Since February 2020, the U.S. labor force has shrunk by about half a million."

"While sustained low unemployment is generally a boon, Japan’s experience also shows the downsides: It means that the economy isn’t able to quickly direct workers to growth areas, which can limit “creative destruction”—the elimination of obsolete industries so that new industries can grow."

See Creative Destruction by Richard Alm and W. Michael Cox. Excerpt:

"Joseph Schumpeter
(1883–1950) coined the seemingly paradoxical term “creative destruction,” and generations of economists have adopted it as a shorthand description of the free market’s messy way of delivering progress. In Capitalism, Socialism, and Democracy (1942), the Austrian economist wrote:

The opening up of new markets, foreign or domestic, and the organizational development from the craft shop to such concerns as U.S. Steel illustrate the same process of industrial mutation—if I may use that biological term—that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one. This process of Creative Destruction is the essential fact about capitalism. (p. 83)

Although Schumpeter devoted a mere six-page chapter to “The Process of Creative Destruction,” in which he described capitalism as “the perennial gale of creative destruction,” it has become the centerpiece for modern thinking on how economies evolve."

But also see this link which suggests that the idea goes back even before Schumpeter to other scholars: Creative Destruction in Economics: Nietzsche, Sombart, Schumpeter by Hugo Reinert and Erik S. Reinert.


This paper argues that the idea of ‘creative destruction’ enters the social sciences by way of Friedrich Nietzsche. The term itself is first used by German economist Werner Sombart, who openly acknowledges the influence of Nietzsche on his own economic theory. The roots of creative destruction are traced back to Indian philosophy, from where the idea entered the German literary and philosophical tradition. Understanding the origins and evolution of this key concept in evolutionary economics helps clarifying the contrasts between today’s standard mainstream economics and the Schumpeterian and evolutionary alternative."

Related posts: 

Okun's Law (2016) 

Economic Growth Is Set to Surge. Hiring Might Not Keep Up. (2021)  

Joseph Schumpeter And Me (2018) 

Jeff Bezos vs. Joseph Schumpeter (2021) 

Joseph Campbell Meets Joseph Schumpeter (The Entrepreneur As Hero) (2012)

How can an economy that is growing so slowly produce such big declines in unemployment? (2012)

Tuesday, September 27, 2022

Can Central Banks Maintain Their Autonomy?

Over the last three decades, the Fed and its counterparts have enjoyed wide latitude in trying to control inflation. Recent failures could soon put that independence to the test.

By Nick Timiraos of The WSJ. Excerpts:

"High inflation “is a significant institutional failure,” said John Cochrane, a senior fellow at the Hoover Institution, addressing a panel of current and former Fed officials in May. “Maybe it was nobody’s fault, but when you target 2% and it’s 8%—if this is an army, you have an after-action report. There’s a court-martial. You figure out what went wrong.”

So what did go wrong? Any postmortem has to begin with the freak nature of the pandemic itself, in which governments and societies across the world—not always at the same time—drastically curtailed economic activity as new waves of the virus spread. During the most aggressive lockdowns in 2020, governments quickly scaled up wage-replacement schemes to prevent severe distress. Supply chains were thrown into chaos.

“A simple way to think about what’s happened is the pandemic was like a war, and you had war financing—lots of spending, not just in the U.S. but around the world,” said St. Louis Fed President James Bullard. Fiscal and monetary policy makers decided “if we were going to err, we were going to err on the side of doing too much,” he said.

Policy makers wanted to avoid what they saw as the same mistakes they had made in the years after the 2008 financial crisis, when they had pushed for belt-tightening despite sluggish economic growth. In hindsight, this led to four new mistakes in responding to the pandemic’s effects.

First, the Fed misdiagnosed the labor market in 2021 as weaker than it was because officials didn’t realize how much it had changed during the pandemic. The unemployment rate ultimately returned to the low levels seen before Covid-19 hit the U.S. economy in March 2020, but with a key difference: around 2.5 million fewer workers. This has led to widespread labor shortages and wage increases, creating upward pressure on inflation.

Second, central bankers’ models were based on the last 20 years of inflation experience, when the main risks to growth came from weak demand from consumers and businesses for goods and services. They didn’t imagine that as the nation recovered from the pandemic, demand would come back much more strongly than the economy’s ability to supply goods and services. Shortages of items such as microchips, motor vehicles and bicycles erupted, driving up prices.

In the U.S., those two mistakes contributed to a third: The Fed didn’t immediately adjust its policies after President Biden’s $1.9 trillion stimulus was enacted in March 2021. The stimulus was much larger than had been forecast, pumping up consumer demand."

"Finally, the pandemic struck just as U.S. and European central bankers were concluding reviews of the policy frameworks they had used to address the problems bedeviling their economies since the 2008 crisis. They wanted to avoid a rut of slow growth and low inflation that would cripple their ability to stimulate the economy in a downturn. They had seen Japan struggle to escape that trap for most of the previous two decades, even after cutting interest rates to zero or below."

"Last November, Mr. Powell and his colleagues began admitting that the Fed had underestimated how much the pandemic had constrained both the economy’s labor supply and its ability to provide goods and services."

"For the last 30 years, “Central banks had the wind at their backs,” said Kenneth Rogoff, an economist at Harvard University. “Globalization, productivity gains from China, demographics, and maybe the political zeitgeist of the time favoring higher growth—all helped them deliver low inflation.”"

Monday, September 26, 2022

Many Colleges Fail in Push to Boost Enrollment of Lower-Income Students

Dozens of top schools are losing ground on goal of enrolling 50,000 additional students by 2025

By Melissa Korn of The WSJ. Excerpts: 

"Dozens of the nation’s top universities are falling short on their goals to enroll more lower-income students—and many are actually losing ground, despite major investments in financial aid, recruiting and academic support, according to a recent report detailing enrollment trends.

More than 125 colleges, including all eight members of the Ivy League, the University of Michigan and the University of Texas at Austin, have signed on to the American Talent Initiative, a campaign established in 2016 that aims to increase by 50,000 the number of lower-income students who enroll at high-performing schools by 2025.

They added just 7,713 such students between 2015 and 2021, the initiative’s progress report found, with early gains partly wiped out during the Covid-19 pandemic, when overall enrollment declined nationwide.

In the 2021-22 school year, the 127 schools that provided data for the report enrolled 292,367 undergraduates who received federal need-based Pell Grants, which serve as a common proxy to measure lower-income student enrollment. That was down by about 500 from the prior year, and off the 2018 peak of 299,084."

Here are some earlier posts on related topics:

Does It Pay To Go To College? (2009)

Maybe That College Degree Is Not As Valuable As You Thought (2010)

As college costs rise, sticker shock eased by student aid (2010)

Is It Getting Too Expensive To Go College? (2011)

Is College Still A Good Investment? (2012)

What College Majors Pay The Highest? (2013) 


Who Is Most Likely To Default On Their Student Loans? (2016)

The Diminishing Returns of a College Degree: In the mid-1970s, far less than 1% of taxi drivers were graduates. By 2010 more than 15% were (2017)

The Diminishing Returns of a College Degree (2017)

Student-Debt Forgiveness Is a Wonderful Boon, Until the IRS Comes Calling: Education analysts, student advocates warn of impending crisis from one-time tax bills individuals may not be prepared to pay off (2018)
Is the U.S. student loan system broken? (2019)

Many college dropouts are worse off economically than if they hadn’t started college (2019)

More employers offer workers help paying off student loans (2019)

College Still Pays Off, but Not for Everyone (2019)

Studying Economics Increases Wages a Lot (2020)

A Declining Industry? The Growing Financial Risks Of Attending College (2022)

See also from Feb. 2020 this article 33 of the Highest-Paying Majors You Can Choose in College.

Here is the salary data from that article

The 15 Highest-Paying Majors Overall

1. Petroleum engineering Median salary: $135,754 
2. Pharmacy, pharmaceutical sciences, and pharmaceutical administration Median salary: $112,519 
3. Metallurgical engineering Median salary: $97,743 
4. Mining and mineral engineering Median salary: $97,372 
5. Chemical engineering Median salary: $96,156 
6. Electrical engineering Median salary: $93,215 
7. Aerospace engineering Median salary: $90,141 
8. Mechanical engineering Median salary: $86,883 
9. Computer engineering Median salary: $86,553 
10. Geological and geophysical engineering Median salary: $86,553 
11. Computer science Median salary: $82,858 
12. Civil engineering Median salary: $82,858 
13. Applied mathematics Median salary: $82,858 
14. Industrial and manufacturing engineering Median salary: $81,452 
15. Physics Median salary: $81,143

The Best College Majors Outside of Technology and Engineering
1. Economics Median salary: $76,000 
2. Finance Median salary: $73,000
3. Accounting Median salary: $69,000 
4. Oceanography Median salary: $69,000 
5. Geology and earth science Median salary: $69,000 
6. Food science Median salary: $67,000 
7. Agricultural economics Median salary: $67,000 
8. Nursing Median salary: $66,000 
9. Industrial and organizational psychology Median salary: $66,000 
10. Meteorology Median salary: $66,000 
11. Public policy Median salary: $65,000 
12. Chemistry Median salary: $64,000 
13. Political science Median salary: $64,000 
14. Marketing Median salary: $63,000 
15. Forestry Median salary: $62,000 
16. Business management and business administration Median salary: $62,000 
17. International relations Median salary: $62,000 
18. Microbiology Median salary: $62,000


Friday, September 23, 2022

Both Sickness and Health, It Turns Out, Are Contagious (a post about signaling)

Just like viruses, health fads such as Peloton, Pilates and Zumba spread rapidly and then fade

By Josh Zumbrun of The WSJ. Excerpts:

"Behind the 95% crash of Peloton’s stock there are two types of contagion.

The first, better-known type is of a highly infectious coronavirus spreading around the world, forcing us to stay home and sparking a massive, ultimately unsustainable boom in sales of the Internet-connected home exercise bicycles. The lesser known type that Peloton typifies is of a highly contagious fitness fad jumping from household to household before running out of newly susceptible households to “infect.”

The analogies between Covid-19 and Peloton aren’t glib. A growing body of research in recent years has suggested that many health behaviors—from obesity to exercise and weight loss, from smoking to quitting smoking—are fundamentally contagious phenomena. The findings, which haven’t gone uncontested, suggest exposure to norms and ideas through your social network could be a powerful predictor of your health, your weight and even the stock prices of companies linked to those things.

“Research suggests that contagion is certainly at play,” said Tricia Leahey, a University of Connecticut professor and co-director of the UConn Weight Management Research Group, who has run a number of experiments over years on the social transmission of weight management. Simply put, “seeing people engaging in a variety of other diets and activities—folks tend to pick it up and try it themselves,” Dr. Leahey said."

"Starting in 1948 researchers persuaded 5,209 residents of Framingham, Massachusetts—about two-thirds of the town—to undertake a battery of physicals, lab samples and questionnaires every two years to track their heart health."

"Having close friends become obese appeared to increase one’s own risk of obesity."

"the phenomenon genuinely reflected causation, not correlation, among acquaintances sharing certain behaviors—and not just harmful ones."

"One such experiment assigned people to different weight-loss programs with or without extra social components. The social contagion effects were fairly strong: being randomly assigned to socially influential teammates increased the odds of achieving significant weight loss by 20%."

"For many people, the way they exercise, not just the fact they exercise, is a way to signal virtue, said Natalia Mehlman Petrzela, a professor at the New School and author of “Fit Nation: the Gains and Pains of America’s Exercise Obsession,” a forthcoming book that looks at the history of fitness culture in the U.S.

The signal isn’t exactly about just being healthy. What drives the contagious trends, she said, is people who are signaling “my participation in fitness culture shows I’m on the cutting edge of luxury and fashion and fitness.”

Related posts:

Are Your Friends Making You Fat? (2009)

Why do stores sometimes pay people to be fake shoppers? (2019)

A fake job reference can be just a few clicks away (2015).

Can A Product Work Just Because It's Expensive? (2008). (fake medicine)

Rent a White Guy: Confessions of a fake businessman from Beijing (by Mitch Moxley in The Atlantic Monthly) (2010) Excerpts below

Can adding a phantom third story to their homes help families find a wife for their son? (2018)

Why do employers pay extra money to people who study a bunch of subjects in college that they don’t actually need you to know? Signaling (2018)

Mexicans buy fake cellphones to hand over in muggings (2019)
Conspicuous Consumption, Conspicuous Virtue, Thorstein Veblen (and Adam Smith, too!) (2007)

How does a company selling used luxury goods spot fakes? (signalling and conspicuous consumption) (2019)

Excerpts from "Rent a White Guy"

"Not long ago I was offered work as a quality-control expert with an American company in China I’d never heard of. No experience necessary—which was good, because I had none. I’d be paid $1,000 for a week, put up in a fancy hotel, and wined and dined in Dongying, an industrial city in Shandong province I’d also never heard of. The only requirements were a fair complexion and a suit.

“I call these things ‘White Guy in a Tie’ events,” a Canadian friend of a friend named Jake told me during the recruitment pitch he gave me in Beijing, where I live. “Basically, you put on a suit, shake some hands, and make some money. We’ll be in ‘quality control,’ but nobody’s gonna be doing any quality control. You in?”

I was.

And so I became a fake businessman in China, an often lucrative gig for underworked expatriates here. One friend, an American who works in film, was paid to represent a Canadian company and give a speech espousing a low-carbon future. Another was flown to Shanghai to act as a seasonal-gifts buyer. Recruiting fake businessmen is one way to create the image—particularly, the image of connection—that Chinese companies crave. My Chinese-language tutor, at first aghast about how much we were getting paid, put it this way: “Having foreigners in nice suits gives the company face.”

Six of us met at the Beijing airport, where Jake briefed us on the details. We were supposedly representing a California-based company that was building a facility in Dongying. Our responsibilities would include making daily trips to the construction site, attending a ribbon-cutting ceremony, and hobnobbing. During the ceremony, one of us would have to give a speech as the company’s director. That duty fell to my friend Ernie, who, in his late 30s, was the oldest of our group. His business cards had already been made."

"For the next few days, we sat in the office swatting flies and reading magazines, purportedly high-level employees of a U.S. company that, I later discovered, didn’t really exist."