Real GDP per worker since 1948

In yesterday's post about the Obama recovery, one thing I said was

"Economist Robert Barro (also in 2016) reported "the growth rate of GDP per worker from 2010-15 was 0.5% per year, compared with 1.5% from 1949 to 2009."" (I assume he used real GDP, which is what I will use).

When I did the numbers for 2010-2015, I got 1.207% for the average. I also did 1948-2009 (don't know why Barro starts in 1949 since there is data that starts in 1947 but it does not matter very much since that first year is pretty close to the overall average). For 1948-2009 I got 1.826% for an average. That is still a pretty big difference (and those years include recessions which 2010-2015 does not.

For 2016-2017, the rates were -.178% (yes, minus) and .95%. That would bring down the Obama average (if we consider that 2017 was still affected by his policies but it is not easy to know when Obama's policies stop having an effect and Trump's begin).

Here are the annual rates from 2001-2017. After that is a timeline chart going back to 1948. The chart of simply GDP per worker (2012 is the base year).

2001	0.97%
2002	2.08%
2003	1.93%
2004	2.67%
2005	1.70%
2006	0.93%
2007	0.75%
2008	0.33%
2009	1.28%
2010	3.16%
2011	0.97%
2012	0.38%
2013	0.81%
2014	0.79%
2015	1.13%
2016	-0.18%
2017	0.95%

Now GDP per worker

The San Antonio Express-News printed an article by me on the Obama recovery

See Obama’s ‘recovery’ wasn’t all that great. There is also an excerpt below from an article in yesterday's WSJ about how job growth has been higher this year than last year after the end of my article.

 It is certainly reasonable for Gilbert Garcia (or anyone) to be skeptical of Trump’s impact on the economy this soon into his presidency. But I think Mr. Garcia paints an overly rosy picture of the Obama economy in his analysis of some of Trump’s statements (“Trump: Recovery that began in 2009 is because of him,” July 29). See Trump claims credit for recovery that started in 2010

Mr. Garcia is right to point out that a recovery that began in 2009 could not have been caused by Trump, who only took office in January, 2017. There is also no question that Trump and his supporters have said things that are just not true.

Mr. Garcia is also right to point out that when we look at the employment picture, including statistics like the unemployment rate and the labor-participation rate, we have to remember that many “baby boomers began hitting retirement age when Obama took office.” But there is a statistic that we can look at to get around that issue.

The Bureau of Labor Statistics reports the percentage of 25-54 year-olds who are employed every month, whether they are in the labor force or not. We don’t have to worry about those who dropped out of the labor force (discouraged workers) that mask the true unemployment rate and we don’t have to worry about people who have retired who might make the labor-participation rate look too low.

These are people in prime earning years and we would like to see them working. But this rate fell dramatically during the recession.

It was 79.7% in December 2007 when the recession started and fell to 75.0% in Oct. 2009. In Oct. 2011, it was a still very low 74.9% while in the intervening two years it never went about 75.4%.

Two years hovering around 75%. How bad is that? Prior to the recession and going all the way back to March 1987, it was never below 78% and there were periods when it was above 80%.

It finally began a steady climb in Nov. 2011, two and a half years after the Obama stimulus package was passed and reached 78.2% in January, 2017, when he left office. Even now, it is just 79.3%. In that sense, we have not fully recovered from the recession.

Yes, we are now close to the 79.7% mentioned above for Dec. 2007. But with about 126 million people in the 25-54 year-old age group, we still have a shortfall of about five hundred thousand jobs.

In 2016, economist Veronique de Rugy reported that “total jobs didn't reach the pre-recession level until July 2014, 6 1/2 years after the recession's onset.” But “2 1/2 years after the start of the 1981 recession (it lasted 16 months), employment had fully recovered.”

Economist Robert Barro (also in 2016) reported "the growth rate of GDP per worker from 2010-15 was 0.5% per year, compared with 1.5% from 1949 to 2009." So yes, after the recession ended in June, 2009, the economy recovered, but it was a slow and weak recovery.

It is true that the last recession was associated with, if not caused by, a very serious financial crisis. Some have said that recoveries are slower in those cases.

But both Barro and Christina Romer (who was chair of the Council of Economic Advisors under Obama), have done research that says that is not necessarily the case. So, looked at in the right historical context, Obama’s recovery might not have been that great.

Was it his fault? That might be hard to determine. But the results were none the less disappointing for the whole country.

See also Stores, Factories Lead This Year’s Unexpected Hiring Boom: Economists expected hiring to slow in 2018 because a tight labor market, the opposite has occurred by Eric Morath. Excerpt:

"Through July, U.S. employers added an average of 215,000 jobs a month to payrolls. That is a marked acceleration from the 184,000 jobs added on average during the first seven months last year. And, well above the 165,000 average monthly employment growth economists surveyed by The Wall Street Journal predicted for 2018 when asked in January."

Did higher prices keep the power grid going during the recent heat wave?

By L.M. Sixel of The Houston Chronicle. The higher prices might have encouraged generators to increase their quantity supplied. If demand increases and prices don't rise, then we get shortages, which would be power outages in this case. Excerpts:

"ERCOT (Electric Reliability Council of Texas) said it expected extreme temperatures and took steps to ensure it had enough supply by restricting planned transmission outages during the summer months and conferred with pipeline companies to ensure that natural gas needed to generate electricity made it to power plants.

Generators also responded to the higher prices, which peaked at $2,172.70 per megawatt hour during the hottest days — compared to last year’s average of $28 per megawatt hour — cranking up power plants during the peak demand periods, said ERCOT spokeswoman Leslie Sopko. Consequently, with supplies sufficient to meet demand, ERCOT didn’t have to issue pleas to consumers and businesses to conserve power."

"Power use hit 72,192 megawatts on July 18, surpassing the previous 2016 record. The following day Texas set another all-time, system-wide peak demand record, topping out at 73,259 megawatts between 4 p.m. and 5 p.m. One megawatt can power about 200 homes during a hot summer day in Texas."

"One former power trader said it appears ERCOT encouraged generators to operate their plants at maximum capacity and sell the power on what’s known as the “day ahead market,” a financially-binding forward energy market where generators agree to sell their power at a contracted price on the following day."

"That caused day-ahead prices to rise, which in turn spurred generators to produce more electricity"

"the price per megawatt hour in the day ahead market hovered between $1,400 and $2,000 during the hottest afternoons last month, compared to typical prices of $100 to $200."

"The soaring wholesale prices in the day-ahead market will likely filter down to retail customers in the form of higher rates, as would spikes in spot market prices"

Retail electricity companies did ask customers to conserve to avoid the higher spot prices.

"Typically, retail companies buy futures contracts to secure electricity for their customers and set prices for their power plans. But when temperatures spike and demand soars, retail companies must often turn to the spot market to acquire additional supplies."

Cost of attendance stipends in college sports

One of the chapters that students like to read from the book The Economics of Public Issues is the one about the NCAA being a cartel. All the schools agree not to pay the athletes. Those athletes generate alot of revenue for the schools but get paid very little. For the best players, the difference can be a a million dollars. But at least the schools can now give them stipends to pay for incidental college costs.

See Three years in cost of attendance stipends paying off by Carter Karels of The San Antonio Express-News. It has quite a bit of information about how much Texas schools are paying and how it is affecting the athletes. Excpert:

"In January of 2015, the Power 5 conferences passed a vote to initiate COA benefits. Every Division I university has since been allowed to provide stipends to its student-athletes.

With the help of the U.S. Department of Education, financial aid offices annually determine stipend amounts. They calculate variables like transportation, tuition and fees, room and board, books and supplies and personal expenses.

“If you lived in an isolated community, it costs more to fly out of there and to get back home,” said Lisa Campos, UTSA’s athletic director. “So that’s going to drive their cost of attendance.”

COA expenses and calculations vary at each school. Off-campus or non-resident student-athletes may receive larger stipends. Full scholarship student-athletes like Hair-Griffin will receive the full amount. One on a half scholarship, however, might garner half of the amount. Any variances depend on the university.

Schools also distribute the stipend in different ways. Student-athletes at one university might receive a lump sum, whereas others could pocket a month-to-month check.

“In practice, (COA) is supposed to really correlate to your locale and your type of institution,” Campos said."

See a post from last year: How The Economics Of College Sports Might Be Distorted

The trend line for the percentage of 25-54 year olds employed

If you look at yesterday's post, you can see that after this percentage fell from about 80 to 75 from Dec. 2007 to Oct. 2009, it stayed there for about two years. So the trend line I have starts in Oct. 2011. Maybe that is when the recovery actually began.

So I start the trend line there. Early on, it looks like about 12 months are above the trend line. Then for awhile there are points both above and below the trend line. But each of the last 11 months is above the trend line (except for one, which looks like it is right on the line). Not sure if this is a good sign or not (is the economy overheating?).

Click here to see the graph from the St. Louis Fed.

The percentage of 25-54 year-olds employed rose to 79.5% in July from 79.3% in June

One weakness of the unemployment rate is that if people drop out of the labor force they cannot be counted as an unemployed person and the unemployment rate goes down. They are no longer actively seeking work and it might be because they are discouraged workers. The lower unemployment rate can be misleading in this case. People dropping out of the labor force might indicate a weak labor market.

We could look at the employment to population ratio instead, since that includes those not in the labor force. But that includes everyone over 16 and that means that senior citizens are in the group but many of them have retired. The more that retire, the lower this ratio would be and that might be misleading. It would not necessarily mean the labor market is weak.

But we have this ratio for people age 25-54 (which also eliminates traditional college age people who might not be looking for work)

The percentage of 25-54 year olds employed was 79.5% for July. It was 79.3% in June. It is still below the 79.7% in December 2007 when the recession started (it was 80.3% in January 2007).  Click here to see the BLS data. The unemployment rate was 3.8% in May . Click here to go to that data. The % of those 16 and older employed went from 60.38% in April to 60.49% in May.

Here is a good graph from the St. Louis Fed. It shows that there are 126,337,000 people in the 25-54 year old group. So since we are 0.2 percentage points below the 79.7% of December 2007, that is still 252,674 fewer jobs (Hat tip: Vance Ginn of the Texas Public Policy Foundation).

For all of 2007, it was 79.9%. For the last 12 months, it has been 79.08%. That difference is still about 1 million jobs. From July 1997 thru March 2001, it was at least 81% each month.

Here is the timeline graph of the percentage of 25-54 year olds employed since 2008.


Here it is going all the way back to 1948.

Rents are relatively low in San Antonio

See Pricey San Francisco apartments can exceed annual pay of Houston renters by Katherine Feser of The Houston Chronicle. The article has a list for 25 large cities. Excerpt:

"Renters need to make $46,500 a year to comfortably afford the average two-bedroom apartment in San Antonio"

"Rents in San Antonio average $1,085 per month, or $13,020 a year, according to SmartAsset, which calculated how much someone would need to earn in each city to spend only 28 percent of their income on rent.

In New York as well, residents would need to make 3 ½ times the salary required to live in San Antonio, Smart-Asset found. To afford the $3,789 a month rent in New York requires an annual salary of $162,386.

San Antonio’s average cost of $1,085 for a two-bedroom unit is among the lowest of the Texas cities ranked.

It’s below the monthly average of $1,324 in Dallas, $1,431 in Austin, $1,205 in Houston and $1,124 in Fort Worth."

The trade deficit, unemployment rates and wages

Click here to read this unpublished study I did about ten years ago. Using statistical analysis and trying to take some other factors into account, I found that trade deficits did not seem to be causing unemployment rates to rise or wages to fall (or if they did, not very much). In some cases, variables were lagged one year in case a trade deficit this year leads to higher unemployment next year instead of this year.

My guess is that it has been studied quite a bit, with probably alot of papers on it. Alot of people talk about trade deficits and how they affect jobs, wages and the unemployment rate.

But I tried something myself anyway. The data was the U.S. from 1965-2000.

I ran a regression in which the yearly percentage point change in the unemployment rate was the dependent variable (UE). The independent variables were

BAL = the yearly percentage point change in the trade balance (as a percentage of GDP). For example, in 2000 it was -3.8% and in 1999 it was -2.8%. So for 2000, the change was -1.0.

LF = the yearly percentage point change in the labor force participation rate.

PR =  the yearly percentage change in productivity.

GDP = the yearly percentage change in the real per capita GDP (with the labor force used instead of the population).

WAGE = the yearly percentage change in real hourly wages

The OLS regression equation was

UE = .49 + .368*BAL - .87*LF + .087*PR - .358*GDP + .05*WAGE

The r-squared was .854 and the standard error was .391

The t-values were

BAL 2.65

LF –3.00

PR 1.48

GDP –9.82

WAGE 1.07

So holding the other factors constant, as the yearly percentage point change in the trade balance gets more positive (negative), the yearly percentage point change in the unemployment rate gets bigger (smaller). This says that as we get bigger trades deficits, the lower the unemployment rate (at least compared to the previous year).

It looks like as the labor force participation rate rises, the unemployment rate goes down, ceteris paribus. But the bigger the productivity improvement, the higher the unemployment rate. I thought that if productivity goes up, firms could increase output without adding workers. But that might be only one explanation. And of course, the bigger the increase in GDP, the lower the unemployment rate.

So if GDP goes up 4.0%, then the unemployment rate would fall 1.43 percentage points. If the trade balance gets 1.0 percentage points more negative, then the unemployment rate would fall .368 percentage points. If productivity rises 3.0%, then the unemployment rate would rise .261 percentage points. If the labor force participation rate rise 1.0 percentage points, unemployment would fall .87 percentage points.

There may be time series issues like serial correlation which I have not tested for. There may also be other factors like minimum wage laws, regulations, etc that might affect this.

Comments welcome.

The correlation between WAGE and PR was high, .72. So I removed both from the regression and added the difference (PR – WAGE). So it is the productivity increase above the wage increase. Sort of the increase in the net benefit of hiring workers. That regression equation was

UE = .85 – .02*(PR – WAGE) + .216*BAL – 1.28*LF - .34*GDP

The r-squared was .813 and the standard error was .436. The t-values were

(PR – WAGE) -.398

BAL 1.50

LF –4.47

GDP –8.48

But the unemployment rate still goes down when the trade deficit gets more negative since the coefficient on BAL is still positive (which says if the trade balance gets more positive, the unemployment rate goes up).

I also tried lagging the BAL variable one year. The coefficient became .087. But that still shows that as the trade balance gets more positive, the UE rate goes up. And as the trade balance gets more negative, the UE rate goes down. Regressions with only GDP growth, BAL and productivity growth have pretty much the same results.

As for wages, they too seem to go up when the trade deficit gets bigger. This covered the 1965-2004 period.

In the regression below

WAGE =   the annual percentage increase in the hourly wage – the annual percentage increase in the CPI

So it is the increase in real wages.

WAGE = -1.96 + .616*PR +.165*GDP -.70*LF - .022*BAL

The r-squared was .40 and the standard error was about 1.7 (which seems high). So, as the trade deficit gets bigger (or more negative), wages go up. If I lagged the trade deficit (BAL) one year, it got even more negative. The t-value on productivity was 3.24. So it was significant. None of the other variables had t-values close to 1.96.

If I took out the labor force participation variable (LF).

WAGE = -2.25 + .679*PR +.151*GDP + .042*BAL

So, if trade deficit gets smaller, wages go up since the coefficient on BAL is positive. If we went from having imports equal to exports to a trade surplus equal to 1% of GDP, wages would go up .04%. This is extremely slight and the t-value was .07, so it was not significant. If I lagged the trade deficit (BAL) one year, it turned negative. Again meaning that a bigger trade deficit meant higher wages. Notice how productivity is the dominant force.

So it looks like reducing the trade deficit does not increase wages.