The Pennsylvania Policy Blog

The US Employment and Training Administration released new data today on Initial Claims for Unemployment Insurance. In the week ended Jan 23 there were 30,547 initial claims for unemployment insurance. In the four weeks prior to Jan 23 there were an average of 43,927 initial claims each week, a figure which is 11% lower than a comparable period in 2009.

There will be one more week of January data on initial claims released next Thursday. In the mean time the next chart summarizes the monthly average of initial claims each January from 2001 to 2010. I will update this chart again next Thursday to reflect a full month of data for January 2010. Note the elevated claims in January 2002-04 reflect the jobless recovery that followed the 2001 recession which officially ended in November 2001. The revisions will reduce employment levels by more than 800,000 jobs.

Friday the Bureau of Labor Statistics reports the job count for January. According to Calculated Risk the consensus view is a small net gain in nonfarm payroll employment and no change in the unemployment rate.

The four-week moving average of seasonally adjusted initial claims in the US as a whole was 468,750. A rule of thumb is that initial claims in excess of 400,000 indicate further job losses. So I’m leaning toward another decline in nonfarm payrolls. The unemployment rate is harder to predict but I’m leaning toward another increase in the rate.

Also of note the Bureau of Labor Statistics (BLS) will officially release with January’s numbers a revision to the job counts that takes into account new data from April 2008 to March 2009 which was not available as employment counts were reported during that period. This is a normal process but the revision will be one of the largest the BLS has made. The BLS’s estimates were off by more than normal because of the very sharp and very sudden collapse of private sector activity that occured in the six months that followed the collapse of Lehman Brothers.

A headline from the Commonwealth Foundation caught my eye this morning, “Stimulus: Saving Jobs or Delaying Recovery?“. The meat of the post summarizes well known and well understood data which demonstrates that we are in the midst of the worst recession since the Great Depression.

The money quote comes near the end:

“Evidently, the stimulus has not brought the kind of change it was intended to bring. Rather the stimulus has prolonged the recession.”

That last key phrase “has prolonged the recession” is linked to a previous article also from the Commonwealth Foundation. This article presents no evidence that the current recession has in fact been prolonged by current policy choices. We do have actual analysis by private for profit forecasters as well as the nonpartisan Congressional Budget Office that the recovery act was effective at increasing both output and employment.

While presenting no evidence to back up its claim that the recovery act has prolonged the current recession the Commonwealth Foundation article written way back in May 2009 is a very creative summary of the dates of recessions from the National Bureau of Economic Research (NBER).

Here is the key quote from that May analysis by the Commonwealth Foundation:

“It is important that policymakers recognize the ups and downs of the economy, and the lessons from past recessions, so as to not over-react to the current downturn and the political pressure to “do something.”… Severe recessions occurred in 1836, 1907, and 1921. The government intervened in none of them, and, as a result, each recession lasted no longer than a year… State lawmakers should study history and understand that government intervention hampers the recovery of the economy and supplants the private sector, while placing an enormous burden on future generations.”

The following chart identifies months the US economy was in recession (the colored bars) for two of the three recessions that the Commonwealth Foundation identifies as evidence that you shouldn’t fight recessions. The 1836 recession which is not pictured is not in the NBER list of recessions. As you will see having this third data point would do little to rescue the Commonwealth Foundation’s argument.

What you don’t get from the Commonwealth Foundation’s analysis is the whole story. What follows are all the recessions from 1857 to 2009.

So when you look at all the data you notice that since the end of the Great Depression, the era of active monetary and fiscal policy, recessions have been shorter and less frequent than in the 19th and early 20th century.

It is important to recognize that there is a debate among Economists about the relative merits of different types of policy intervention deployed to fight a recession. Some prefer activist monetary policy intervention plus automatic stabilizers like the unemployment insurance system. Others prefer a combination of activist monetary, automatic stabilizers and activist fiscal policy (tax cuts and or spending measures like in the recovery act) intervention. So while the precise prescription may differ depending on the economist most still believe in some form of policy action to fight recessions.

Furthermore the instability in the financial system which has followed the deregulation of that sector and is the cause of our current recession has done serious harm to the reputations of those whose project it was to recreate the Robber Baron economy of the late 19th and early 20th century.

MORE PLEASE!

Additional deficit financed spending is needed in order drive the unemployment rate down faster than current projections!

In a recent blog post Attack of the Minimum-Wage Increase University of Chicago economics professor Casey B. Mulligan argued:

“From December 2007 until July 2009, for every five full-time jobs lost, part-time employment increased by one job. The blue series shown in the chart aims to predict the creation of part-time jobs from the data on full-time jobs alone, by assuming that each five full-time job losses created one part-time job. The series shows how this approach closely fits not only the overall increase, but also several of the changes in trend over that period. Since July 2009, full-time employment has continued to fall, but we no longer see the partly offsetting part-time employment increase. The July 24 minimum-wage increase most likely changed that pattern. In other words, if the minimum wage had stayed at $6.55, part-time employment probably would have closely followed the blue series in the chart, as it did until July 2009.“

Below is a reproduction of Mulligan’s chart.

This leads Mulligan to conclude:

“Many economists expected that the new prohibition on jobs paying between $6.55 and $7.24 would disproportionately affect part-time jobs. After all, recall that part-time employment typically pays less per hour than full-time employment does. Some of those employers raised their pay to conform to the new minimum, but others were expected to eliminate some of their part-time positions. That’s probably why the data show that, starting with August 2009, part-time employment began to reverse its trend.“

According to the Economic Policy Institute only 31 states were affected by the federal minimum wage increase to $7.25 on July 24 2009. Another 4 states (Kentucky, Maine, Nevada, Illinois) plus the District of Columbia also raised their state minimum wage in July 2009.

The remaining 15 states already had state minimum wages greater than or equal to $7.25 by July of 2009.

So what does Mulligan’s chart look like if you break up the data according to states affected and not affected by the most recent minimum wage increase?

Here is Mulligan’s chart for states not affected by the minimum wage increase (Footnote 1):

And here is Mulligan’s chart for states affected by the minimum wage increase.

The relationship between full-time jobs lost and part-time employment breaks down in all states regardless of whether their minimum wage increased in July or not.

Observing the same break in the pattern in states not affected by the minimum wage increase demonstrates that the change in the relationship between part-time job loss is likely due to factors other than the minimum wage increase.

Thanks to Marianne Bellesorte of Pathways PA for pointing out the Mulligan post and to Kai Filion of the Economic Policy Institute for his assistance with CPS data.

Footnote 1: Following Mulligan the relationship between full-time job loss and part-time employment from December 2007 to June 2009 in the 15 states not affected by the minimum wage increase is used to project the gain in part-time jobs from full-time job loss throughout the whole period. Similarly to project part-time employment for the states affected by the minimum wage increase I used the relationship between part-time and full-time employment in these 35 states plus D.C. from December 2007 to June 2009.