At the end of my previous post I wrote words to the effect that: “If it´s awful you want, awful is what you´ll get so, farewell jobs”.
Soon after I read this interesting post by Karl Smith – “How the economy churns” – who plays around with the JOLTS data to show “how different the economy as a whole is from the economy we have in our mind”.
KS concentrates on the dynamics of the Leisure and Hospitality (L&H) jobs sector, a job heavy sector, representing about 10% of all jobs. After looking and graphing the data, KS concludes:
Rather than seeing a recession happen in terms of layoffs and sending people home. We simply see that job openings shut down.
We are not going to see lots of workers losing their jobs, simply that the opportunity for new workers to gain jobs will collapse. This is somewhat different from how we commonly talk about job markets.
That meshes well with my “jobs, farewell” quip.
At the very end Karl mentions that the even more jobs-heavy Education and Health Services (E&H) sector shows the same general characteristics.
Here I´ll consider both sectors, which together make up a little more than one fifth of total employment and see if what transpires can be associated with the “grand monetary policy error” after mid-2008. As I´ll try to argue, “it sure can”!
The first panel shows that while, at least for the L&H sector, Karl´s musing looks right, for the E&H sector lay-offs and discharges increased at the very end and after the recession. As the chart following the panel show, that´s likely due to the fact that this sector has many government employees and government began to lay-off workers only when the perceived need for “austerity” became more evident following the rise in public debts and deficits.
In both sectors job openings have, in KS´s words “shut-down”. That´s an exaggeration to draw attention to the problem. What´s happening is that job openings are going up, but not at a rate that makes up for the prior job losses. And it´s interesting to note (see next chart) that these two jobs sectors have gained share, showing a hefty increase at the time nominal spending crashed (that point is indicated in all charts by the dotted vertical bar). It follows that most other sectors must be experiencing weak job opportunities.
The next panel, which charts lay-offs & discharges and job openings for total private industry indicates that´s true.
And the next set of charts clearly indicates that employment (and job openings) are being held back by the lack of demand. All the “awful” things happen after the Fed lets nominal spending, the encompassing aggregate under its control, crash.
Many doubt that monetary policy was responsible (after all, interest rates were very “low” prior to the crash) and worse, don´t think monetary policy can do much now because the economy is very close to its potential. That´s the view of Fed official such as St Louis Fed president Bullard or Minnesota Fed president Kocherlakota. On that regard, as additional evidence that “lack of demand” is the major factor, David Beckworth has a nice post, where he shows that, according to the National Federation of Small Business (NFIB) survey of Small Business Economic Trends, the single most important problem is “sales” (i.e. demand).
On the chart we notice that “regulation” has steadily grown and could, in future, become a major impediment. Since the increase in “regulation” has been a way for government to help “solve problems”, this kind of “solution” can make things worse over time. Much better to focus on the primary problem – lack of demand. So I have a very hard time trying to figure why, despite all the evidence, monetary policy is seen as ineffective, innocuous or worse, dangerous.
The last chart, also borrowed from Beckworth´s post, shows how closely the “sales problem” is connected to the “unemployment problem”.
So it seems that until some “obsession barriers” (and I´m thinking here particularly of the IT barrier) are broken, jobs will not be returning in needed quantities.