Tag: labour market

Why do we need 3% economic growth to keep unemployment stable? – Part 1

I like to think of myself as not too stupid. When I don’t understand something, I like to dive into that.

  • Sometimes I learn new facts that help me make sense of what seemed like disparate and nonsensical data points.
  • Sometimes I learn what I thought were facts were not.
  • Sometimes I learn new theories of the world.
  • Sometimes I decide those theories are nonsense and the reason I didn’t understand the thing in the first place is that it makes no sense.

Searching out areas where I feel confused or uncertain is a useful way to figure out how to move forward. I try to shield from public view when these areas of uncertainty are to do with economics. But no more.

I believe we need high growth to keep unemployment stable. But I’ve never really understood why.

My economics education was a good one. But I never did honours – let alone a PhD – and it was a long time ago. They didn’t teach us everything, and I’ve forgotten plenty.

This is my way of saying I don’t know everything about economics. (Despite how obvious it is this is weirdly hard for me to type.)

What I’m doing here then, is going on a learning expedition. Trekking deep into territory that has been explored, but not by me. Maybe along the way I’ll learn something. Maybe even have some insights that are new to me. Maybe even have some insights that are new!? Most likely I will discover everyone else already knew something I didn’t.

This is part 1. I’m expecting to be able to put together a few more parts over coming days as I learn a bit on this topic. But for now, I’m going to write about a few of the preconceptions I have that give me the idea this is an important question to pursue.

  1. My sense is if the Australian economy saw population growth and productivity growth drop to zero it would have growing unemployment. But basic economic equilibrium theories would suggest that doesn’t happen. Why wouldn’t all the firms just produce the same again next year, using the same workers?
  2. My guess is that growth has in the past come largely from population growth. Which is weird. It suggests adding new people to the population / labour force creates so much new demand that it props up not only their own job but other people’s jobs too.
  3. The global population is growing fast. But it may stop doing so within our lifetimes. At that point, population growth will stop contributing to economic growth. If population growth causes econ growth causes employment, the end of pop growth could be the end of employment.  That’s a nasty scenario. We may have to choose between the limits of the planet or the employment of its workforce.

At the least this will be a quick two part series where I explain the answer in part 2 and am forced to revise the first thing I said in this post. ;)

Please leave any helpful comments or suggested reading for me in the section below. I’ll write more soon.

The distinction between work and leisure is just a model. And it’s breaking down

Economists like to divide up our lives into work and leisure. Like a lot of economics thinking, this is just a model. It compresses some details to make issues tractable. Which is normally fine.

But this model is very powerful – it is very widely accepted, and used outside the profession. The average punter is able to say, well, the cost of pizza delivery is $4, and it would take me 15 minutes to go to the shop and back, so I should get the delivery if I value my time over $16/hour. Since I make $20 an hour, I’ll get the delivery.

If this labour/leisure model fails, a lot of our thinking about the labour market needs a re-think. And this model fails in many ways.

Continue reading The distinction between work and leisure is just a model. And it’s breaking down

A fact you never guessed about our 21st century, hyper-speed labour market.

We live in a new era. A time unprecedented. An age where the economy shifts as fast as you can send ones and noughts along optical fibre, and the job you’ll have in five years time hasn’t even been invented yet. Right?

Not right.

My favourite labour economist is Jeff Borland, and he specialises in truth bombs, which he distributes in his monthly labour market snapshots. I’ve written them up before, for example, here.

He crunched the numbers and found that despite the decline of unions, the march of neo-conservatism, the lingering influence of Peter Reith and the legacy of workchoices, job durations are as long as – or longer than – they were in 1982.

Screen Shot 2014-09-08 at 11.55.04 am Screen Shot 2014-09-08 at 11.54.57 am

Borland:

“If I had a dollar for every time I have heard that: ‘Young people entering the labour market today are going to have many more jobs during the course of their working lives than older generations’, I might not be rich, but I reckon I would be owed about a thousand dollars.”

For the last dozen years (at least), he’s been a professor of Economics at Melbourne University, so he knows tenure. In that time I’ve had probably ten jobs, so this news is very surprising to me.

What else is interesting is that people feel (and are) relatively safe in their jobs.

Screen Shot 2014-09-08 at 11.59.47 am

I suspect they feel even safer since the Abbott government started polling about as well as the Gillard goverment. The chances of frightening workplace reform coming out before the next election would have to be slim to nil given the reputation of the government right now.

Should unemployed people be forced to take any job?

Tony Abbott is having a horrendous run. He’s now more unpopular than Bill Shorten, who holds an 11 point lead in approval ratings, a reversal that is truly spectacular.

His big problem is a tough budget that broke promises.

One of the Government’s signature policies is to push young people into taking work. Their policy is called “earn or learn.” It will deny the Newstart (dole) payment to anyone under the age of 25; and people aged 25-30 will not be eligible for the dole in their first six months of unemployment.

”There is no right to demand from your fellow Australians that just because you don’t want to do a bread delivery or a taxi run or a stint as a farmhand that you should therefore be able to rely on your fellow Australian to subsidise you,” said Employment Minister Eric Abetz.

The rationale is to stir up resentment at the welfare state.

“The bludger should not be our national icon.” – Rupert Murdoch, (American citizen)

It’s an entirely political, dog-whistle ploy to make underpaid workers of Australia target their resentment at the unemployed, not the managers that dine with their own remuneration committees. 

But doesn’t mean the policy intent is all bad. Here’s why the policy can do good for some people (caveats follow).

Long-run unemployment is one of the most damaging things that can happen to a person. It causes not just a fall in skills (human capital). It is associated with worse health outcomes, including mental health issues, falling life expectancy, higher chances of dropping out of the labour market, and their children’s school performance.

Long run unemployment is also bad for the economy. Hysteresis is now an accepted fact of macroeconomics. It describes the way long periods of high unemployment make the minimum achievable unemployment rate creep higher and higher. An economy that can match people into jobs swiftly increases the welfare of future workers.

Image

Sure unemployment is bad. But people know that and want to get themselves a job. No?

Well, a new paper from the National Bureau of Economic Research shows that unemployed workers set a reservation wage that affects their willingness to take a job.

“workers are 24 percentage points more likely to accept an offer that is equal to or exceeds their reservation wage than to accept a job with a wage below the threshold.”

This fits with some excellent new research by Australian economist Justin Wolfers. He found arbitrary thresholds are a source of important irrationalities in human behaviour, and illustrated it with marathon finishing times.

marathon finishing times
Source: NY Times

Wolfers’ article focuses on how arbitrary thresholds could cause irrational investment behaviour, especially the case of people being unwilling to sell their house for less than they bought it for. But the analysis could as easily apply to reservation wages, which can be set with reference to what you used to earn.

If you refuse a job because if pays $5000 a year less than your old job, but then spend months more unemployed, you may well be worse off.

These pieces of research are part of the new behavioural economics that finds predictable irrationalities in human behaviours.

It is not uncommon for social outcomes to be improved with a “nudge” toward the more rational course of behaviour. Traditionally, of course, conservatives oppose these kind of nudges, preferring to let humans remain “free”, while liberals tend to endorse them. In the case of “earn or learn,” it is more of a shove then a nudge, and conservatives are more likely to be fans of it.

I don’t want to stand up for the exact policies that the Coalition has brought in. I think they are too blunt to have a net good effect. But the concept that the labour market will reach equilibrium without intervention is also likely wrong – unemployed people should be encouraged to not just search for, but take a job.

—

CAVEATS: 

Unemployment is down! We Think!

Unemployment numbers are out and they look like good news. Unemployment fell 0.2 per cent to 5.8 per cent. This matters to everyday life in the following four ways.

1. Lower unemployment should mean bigger pay rises, and more options if you lose your job.

2. Lower unemployment increases the chance the Reserve Bank will hike interest rates, which will get you a better return on the money you have stashed in the bank.

3. Lower unemployment tends to force up the Australian dollar, creating cheaper holidays and cheaper imports. (It jumped over US94c this morning for the first time since last November.)

4. Lower unemployment increases the chance of the incumbent government doing well in the polls. “It’s the economy, stupid.”

But…

There’s not total absence of doubt.

If you look at the numbers more closely, there’s a few little things that might make you worried.Image

For starters, while the latest data, seasonally adjusted, shows the unemployment rate falling sharply, the trend data (calculated over a longer period) actually has unemployment rising.

There are things doubters can always say about the monthly data, that are not especially helpful.

“It’s just one month!”

“The standard error of the unemployment rate estimate for this survey is 0.2 per cent!”

“Seasonal adjustment is not perfect!”

The top two complaints are true and can only be resolved by waiting for more data (which will, itself, be subject to the same issues…).

But the ABS manages seasonal adjustment pretty well. They even account for the fact that Easter was in March last year and in April this year

March is a big month for falling unemployment.

Red line represent falls in March
Red lines represent March

On average, unemployment has fallen in 19 of the last 20 Marches, by an average of 44,000. Why? perhaps it’s only now that businesses are getting over the summer lull.

The ABS takes that effect out systematically. The red lines are the last 20 Marches, almost all of which show falling unemployment. But the average of the blue lines is just about zero:

Red dots are original data, blue lines are seasonally adjusted.
Red dots are original data, blue lines are seasonally adjusted. (data for last 20 Marches.)

We can trust this data for now. But it will be very interesting to see if April results in the effect being magnified or reversed.

Do you really get a job by looking at job ads?

How exactly do people get jobs?

A few people I know are currently looking for work. I began to wonder if combing through advertised jobs is enough, and thought a little sample of my own experience might help answer that question.

1996. My first ever job was selling ice-creams at a festival in Melbourne called Moomba. I got the job through a friend’s dad. Pay and conditions were great.
Ad: 0%. Luck: 0%. Inside running: 100%.

Image
Back when I wore a watch

1998 After I finished school I got a job as a busboy at a cafe in a shopping centre. It wasn’t advertised but I handed my resume out to 20 businesses near my house and this one had an employee quit the next day. $8.50 an hour in cash seemed pretty good to me.
Ad: 0%. Luck: 100%. Inside running: 0%.

2000 I became a waiter at Pancake Parlour. Pay was a whopping $7.27 an hour. It was an advertised job for which I went through a quite involved interview process.
Ad: 100%. Luck: 0%. Inside running: 0%.

2001 Waiter at italian restaurant. Through a friend. I lasted about three weeks.
Ad: 0%. Luck: 0%. Inside running: 100%.

2002. Market research interviewer. A friend who worked there told me the place was hiring. Great pay and conditions so I joined the union. Ended up doing market research for big tobacco, but I didn’t mind because smokers loved to chat about smoking. It beat asking people about banks.
Ad: 80%. Luck: 0%. Inside running: 20%.

Teaching english2003 I applied to an ad for an English teacher in the small town of Qinhuangdao, China, where I found I could go months without seeing another foreigner.
Ad: 100%. Luck: 0%. Inside running: 0%.

2004. I parlayed my meagre teaching experience into a job as a tutor in the first-year economics subjects, which was among the best and most convenient jobs for a student ever.
Ad: 100%. Luck: 0%. Inside running: 0%

2005. My first full time job. I became a graduate Treasury policy analyst, living in Canberra.Treasury shot tidied up Ad: 100%. Luck: 0%. Inside running: 0%

2005. Ski instructing at Perisher Blue. A week-long “hiring clinic” for which you have to pay hundreds of dollars serves as both interview process and training.
Ad: 100%. Luck: 0%. Inside running: 0%

2008. Nauru budget adviser. I happened to have just finished my tutoring contract when I was asked by someone I knew in the federal government to come to an interview. I don’t think they interviewed anyone else.

nauru office Ad: 0%. Luck: 20%. Inside running: 80%

2009 Victorian government policy officer. Through a recruitment company.
Ad: 0%. Luck: 0%. Inside running: 0% (I’d say it was 100 per cent luck but luck should be good and this job wasn’t.)

2010. Journalist at the Financial Review – I applied at a timely moment when a bunch of people had quit. But there was no job advertised and I had someone on the inside put in a good word for me.
Ad: 0%. Luck: 30%. Inside running: 70%

2013 – Freelance writing. I sell things mostly to people I know from my other jobs, but also via some cold calling.
Ad: 0%. Luck: 20%. Inside running: 80%

After having had 17 jobs, just six came from simply seeing an ad and applying. My crude averaging of the numbers (including some jobs I didn’t go into above) says ads explain 46 per cent of my jobs, inside running 32 per cent, and luck 22 per cent.

Screen Shot 2014-04-08 at 10.24.52 am

(I should note luck played a pretty big part in being born to a family that cared a lot about education and invested in my future. It also doesn’t hurt to be in a bunch of categories that are unfamiliar with the sting of discrimination. Is my experience strongly shaped by these privileges?)

The common trope is that 70 per cent of all jobs are not advertised.

Economic theory suggests a great benefit and a great cost. If firms are able to fill jobs quickly and minimise their search costs, that could be an advantage. But if it means they miss out on the best human resources, they suffer.

Despite the risks of hiring through word-of-mouth, the approach is not about to go away. This paper finds that firms that hire through referrals may be more profitable.

This expert recommends job hunters should spend: “20% of the time responding to job postings … another 20% ensuring your resume and LinkedIn profile are easy to find and worth reading, and the remaining 60% networking to find jobs in the hidden market.”

If my experience holds for everyone, its going to be advantageous to keep working in the same city, or at least the same country, where you have a bunch of connections. It also doesn’t hurt to be on LinkedIn.

But I want to know if the same is true for you. Have you got your jobs by responding to ads and going through rigorous processes? Have you been lucky? Made your own luck? Deliberately developed and used your networks? Please share your experience in the comments! (Look for the words “Leave A Reply” below)

Work: nice to have. But not all the time.

Work. It’s a chore, isn’t it? If Australians can get out of it, they will.

The latest unemployment data are out, and they show this : Labour force participation has fallen to its lowest level since April 2006, and male labour force participation has fallen to its lowest level since records began, 71.0 per cent.

Look at this graph:

Image

Participation counts those working and those looking for work. It excludes those studying, retired, backpacking round Europe, unable to work, etc.

In the short run, labour force participation falls because there are not enough jobs. Unemployment has risen to 5.8 per cent, from under 5 per cent in April 2011. But look at the big picture.

What startles me is that since February 1978, the total labour force participation rate has risen only 3 percentage points. Despite massive changes in economic structure, labour laws, flexibility and social pressure to wear neckties, work is almost as distasteful as ever.

Total participation has risen from 61.3 per cent, to just 64.6 per cent. That means male disengagement has matched female engagement engagement practically one-for-one.

That massive surge of female empowerment has been met with a deep sigh as men settle onto the couch.

Why has participation not surged over the long run? Perhaps it is because Australia is rich. We can afford to retire earlier, and even take a few mini-retirements mid-life, such as long stints backpacking, or extended periods of parental leave.

Image
Source: ABS National Accounts, Sept 2013

Stagnant labour force participation is conventionally seen as bad news.

If you are a good Treasury alumnus, like me, your brain is seared with three Ps. Productivity, population and participation. These are the three factors that make sure enough productive activity occurs to keep us all in the lifestyle to which we are accustomed.

But let us be totally frank. While productivity gains are a free kick meaning we do more with less, the other two create trade-offs.

Increasing Australia’s population is a costly way to increase the labour force. We need to build a whole lot of extra infrastructure to accommodate extra people. 

And increasing participation also comes with trade-offs. Work is called work for a reason. Unless you are a professional sportsman or a clown, work is not really much like play. If people can avoid it, they often will. That’s what this graph makes abundantly clear.

If you leave your job aged 55 and still have the legs for ten years of golf, or if you take a year off to be with your young child, opting out of the workforce could be as much a contributor to national well-being as GDP is.