Slacktivist monetary policy

March 12, 2014

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How much slack is there in the labor market? That is, how close is the American labor market to full employment? The answer to that question is important, says Evan Soltas, because estimating whether the economy is near its potential affects what, if anything, policymakers actually do to help the economy. No one is quite sure, but Paul Krugman argues against the emerging consensus that says “even though we still have huge unemployment, we’re actually running out of employable workers”.

Soltas divides the two economic camps into the slackers and the quitters. The slackers, including Fed chair Janet Yellen, as well as Krugman, think the economy still has a long way to go before it’s back at its full potential, therefore the Fed should continue to help it along. The quitters think there’s very little slack in the labor market, especially for the short-term unemployed, and therefore the Fed should think about raising interest rates to stem coming inflation.

In the quitters camp is the New York Fed’s Henry Linder, Richard Peach, and Robert Rich, who in a recent paper found evidence that “the long-duration unemployed exert less influence on wages than the short-duration unemployed”. Soltas sees this as “a sign that the job market is working for some even as it fails others”. When wages are going up as they are now (albeit slowlyaround 2%), that implies the advantage in the labor market is shifting toward workers, and therefore there’s not much slack.

However, Krugman points out that wages normally rise during bad weather — like this winter — because low-wage workers are more often unable to work than their white-collar counterparts. Jared Bernstein looks at both quit rates in yesterday’s JOLTS report and short-term unemployment rates and thinks the economy still isn’t at its potential. Dean Baker says much the same thing. If you go back a decade or more, says Bernstein, neither metric is back to normal. “I don’t think an objective person would look at the end of the lines in the figure and conclude: ‘our work is done here, folks’”, he writes. — Shane Ferro

On to today’s links:

Modern Problems
Silicon Valley’s youth problem: engineers, money, and being over-the-hill at 35 – NYT Mag

Tax Arcana
Big US companies are holding nearly $2 trillion overseas to avoid US taxes (up nearly 12% last year) – Bloomberg

Unsurprisingly, women still do the majority of the unpaid work – Shane Ferro
The CEA’s report on the importance womens’ contributions to the economy – The White House

BoE governor: currency manipulation charges are more serious than Liebor – Telegraph

Ackman’s revenge: The FTC announces its investigating Herbalife – Dan McCrum
When hedge funds lobby – Felix

Piketty: The US has seen an “unprecedented rise of top managerial compensation” – NYT
How finance gutted American manufacturing – Boston Review

The problem with restaurant letter grades: health inspectors don’t know anything about cooking – Open City

Inside the barista class – The Awl
Related: When a journalist is forced to take a retail job – Joseph Williams

Journalism startups aren’t a revolution if they’re filled with white men – Emily Bell

Primary Sources
The economics of the underground commercial sex economy – Urban Institute

The Fed
The Fed’s 7 degrees of communication – Jon Hilsenrath

Primary Sources
The average Wall St bonus was up 15% last year to $164,000, the highest since ’08 – NY State Comptroller

Interesting Failures
“Error is the engine of language change” – The Guardian

Profiles in Capital
A good profile of Stanley Fischer, including a sick Larry Summers burn – Binyamin Appelbaum

Study Says
The myth of the myth of the myth of the hot hand – Andrew Gelman

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