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Charts Related to Labor
Market Developments
Robert J. Gordon, Northwestern and
NBER
CBO Advisers Meeting
November 13, 2009
Recent Performance of UI
New Claims as an Indicator

Back in March, discovery of a tight lag
between the cyclical peak in new
claims and the NBER trough
– Four of last five recessions, lag had been
4-6 weeks (1991 -3 weeks)
– This time turned out to be 10 weeks, not
a big miss for this leading indicator

How bad will the jobless recovery be,
according to this indicator?
New UI Claims Relative to
Peak Value, red line is now
Initial Unemployment Claims as a Percentage of Peak Value During Recession,
1967-2009 (4 Week Moving Average)
100%
Mar-75 (6)
90%
Jul-80 (6)
Nov-82 (6)
80%
Mar-91 (-2)
Nov-01 (4)
???-09
70%
peak date
60%
50%
-52 -48 -44 -40 -36 -32 -28 -24 -20 -16 -12 -8
-4
0
4
Weeks From Peak
8
12
16
20
24
28
32
36
40
44
48
But the Labor Force Has
Grown; UI Claims / LF
Initial Unemployment Claims as a Percentage of Labor Force,
1967-2009 (4 Week Moving Average)
1.0%
0.9%
0.8%
0.7%
0.6%
0.5%
0.4%
0.3%
0.2%
0.1%
0.0%
-52 -48 -44 -40 -36 -32 -28 -24 -20 -16 -12 -8 -4
0
4
8 12 16 20 24 28 32 36 40 44 48
Weeks From Peak
What do Buoyant
Productivity Numbers
Imply for Trends?




Output Identity Y = Y/H * H
Per Capita Version Y/N = Y/H * H/N
To make the identity work, Y/H is total
economy output per hour, not NFPB sector
Method of Obtaining Trends:
– Kalman Filter with a Cyclical Adjustment based
on the unemployment gap derived from my
“triangle” inflation equation
– Relation of U gap and GDP gap has shifted
– Results here based on detrending for 1986-2009,
not the alternative of 1962-2009
Kalman GDP Trend based on
Ugap Lags vs. Leads
Figure 2a(2). Kalman Trended Y using alternatively UDEV leads and UDEV lags,
1986:1 - 2009:3
6
5
4
Value
3
C8 Y
Y Trend using UDEV Leads
2
Y Trend using UDEV Lags
zero
1
0
-1
-2
1986
1991
1996
2001
Year
2006
Right Side of the Identity:
Trends for Y/H, H, and H/N
Figure 4a(2). C1LP vs C1 Hours, 1986:1 - 2009:3
Figure 4(2). C1LP vs C1 Hours per Person, 1986:1 - 2009:3
3
3
2.5
2.5
2
2
C1 Hours
1.5
C1 Productivity
Value
Value
1.5
C1 Hours Per Person
1
C1 Productivity
zero
0.5
1
0
0.5
-0.5
0
1986
-1
1991
1996
2001
Year
2006
1986
1991
1996
2001
Year
2006
Conclusions about Trends
in Y, Y/H, H, and H/N



Results reflect a twist compared to previous recessions
– 2007-09 is worse for H/N than it is for output
– Big U gap implies output trend is growing at 3.0 percent
vs. the previous 2.5 consensus
– Of the 3.0, 2.4 is the productivity growth trend and 0.6 is
the growth trend of total economy hours
Robust Y/H trends contingent on continuing decline in H/N of
0.5 percent per year
Qualifications on robust productivity trend of 2.4 in the total
economy, ~2.7 to 2.8 in NFPB sector
– Contingent on an ongoing train wreck in the labor market
– Contingent on this recession’s imbalance between labor
market weakness vs. relative output market strength