Wednesday, May 19, 2010

What ever became of welfare moms?

Chicago Tribune article "What ever became of welfare moms?" (May 17th, 2010) offers the suggestion that no-one believes that potential jobs exist for individuals who are looking for them. Corrections isn't so sure.
No one sane assumes that today's unemployed are loafing, that jobs are 'out there' for them or that getting married would solve their problems.
The suggestion is that somehow, all individuals who are not unemployed due to minimum wage simply cannot get a job because there are no jobs out there for them. This idea is displayed graphically below (click to enlarge). The figure isn't copacetic with the empirical reality as Corrections sees it. Here, an increase in labor supply will only decrease wages while creating no extra jobs.

However, they still appear to be "voluntarily" unemployed, insofar as there are jobs they are unwilling to take. Let us examine job openings, layoffs, and the unemployment rate from the Job Openings and Labor Turnover Survey (for job openings and layoffs) and the Current Population Survey (unemployment rate). displayed graphically below (click to enlarge). All figures are seasonally unadjusted and relate to private job openings and layoffs.

As we can see from the figure, there is no giant increase in the availability of Summer jobs, and little discernible seasonal variation, save a spike in January layoffs. From this we might conclude the entire job market was being determined by demand-side economics--when firms want to hire, unrelated to the desire of individuals to work.

However, if we examine the teenage job market, we might expect a large supply shift during the Summer, because the cost of working has declined (they are no longer in school). If this is the case, and our first figure holds for teens, teen wages should go down but no more teens should work. However, this is not the case. We can see this through replication (note: our axes are different) of Figure 4 in Casey Mulligan's 2010 NBER Working Paper Simple Analytics and Empirics of the Government Spending Multiplier and other "Keynesian" Paradoxes (click to enlarge). The figure displays the total deviation in teen employment on yearly trend (in thousands). It clearly indicates that this Summer appears to be similar to past Summers in terms of employment--in spite of a supposedly inelastic labor demand. This suggests that labor demand is not in fact inelastic--it is elastic enough to support a large (million strong) (Summer) increase in labor supply.

As we see, teen employment in the two "crisis" Summers was almost exactly the same as it was from 2003-2007. That labor markets were this flexible for teens even while seasonally unadjusted job openings were not spiking dramatically. For Corrections point that labor demand is not inelastic to hold, the above is all that is required--earnings are not necessary (though preliminary examination of quarterly data indicates support for our claim). It should be quite clear that the increase in jobs is largely due to supply-side factors of workers rather than demand-side factors of firms.

However, in the interest of further making our point, we display "monthly" deviations from December-to-December trends of weekly earnings for our three relevant periods--2003 to 2007, 2008, and 2009 (click to enlarge). We note this is a bit artificial, as we use quarterly data with monthly trends. The general shape shouldn't change much, and it illustrates our point well.

There does not appear to be a consistent summerly (3Q) effect. No significant downward shift for the average of 2003-2007 and 2009, negative for 2008. If anything, this further indicates to Corrections that labor demand is relatively elastic, rather than inelastic. Were it inelastic, we would expect a Summer wage effect consistent across 2008 and 2009, due to the large increase in labor supply.

Corrections concludes that there do appear to be jobs out there for those who are willing to supply them--the labor demand of firms appears to be elastic enough to cause a positive employed individuals.

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