Financial Risks, Rules, Discretionary Authorities and Slow Productivity Growth, Twenty Seven Million Unemployed or Underemployed, Stagnating Real Wages, United States International Trade, World Cyclical Slow Growth and Global Recession Risk
Carlos M. Pelaez
© Carlos M. Pelaez, 2009, 2010, 2011, 2012, 2013, 2014
Executive Summary
I Twenty Seven Million Unemployed or Underemployed
IA1 Summary of the Employment Situation
IA2 Number of People in Job Stress
IA3 Long-term and Cyclical Comparison of Employment
IA4 Job Creation
IB Stagnating Real Wages
II Rules, Discretionary Authorities and Slow Productivity Growth
IIA United States International Trade
III World Financial Turbulence
IIIA Financial Risks
IIIE Appendix Euro Zone Survival Risk
IIIF Appendix on Sovereign Bond Valuation
IV Global Inflation
V World Economic Slowdown
VA United States
VB Japan
VC China
VD Euro Area
VE Germany
VF France
VG Italy
VH United Kingdom
VI Valuation of Risk Financial Assets
VII Economic Indicators
VIII Interest Rates
IX Conclusion
References
Appendixes
Appendix I The Great Inflation
IIIB Appendix on Safe Haven Currencies
IIIC Appendix on Fiscal Compact
IIID Appendix on European Central Bank Large Scale Lender of Last Resort
IIIG Appendix on Deficit Financing of Growth and the Debt Crisis
IIIGA Monetary Policy with Deficit Financing of Economic Growth
IIIGB Adjustment during the Debt Crisis of the 1980s
I Twenty Seven Million Unemployed or Underemployed. This section analyzes the employment situation report of the United States of the Bureau of Labor Statistics (BLS). There are four subsections: IA1 Summary of the Employment Situation; IA2 Number of People in Job Stress; IA3 Long-term and Cyclical Comparison of Employment; and IA4 Job Creation.
IA1 Summary of the Employment Situation. Table I-1 provides summary statistics of the employment situation report of the BLS. The first four rows provide the data from the establishment report of creation of nonfarm payroll jobs and remuneration of workers (for analysis of the differences in employment between the establishment report and the household survey see Abraham, Haltiwanger, Sandusky and Spletzer 2009). Total nonfarm payroll employment seasonally adjusted (SA) increased 217,000 in May 2014 and private payroll employment rose 216,000. The average monthly number of nonfarm jobs created from May 2012 to May 2013 was 185,083 using seasonally adjusted data, while the average number of nonfarm jobs created from May 2013 to May 2014 was 198,250, or increase by 7.1 percent. The average number of private jobs created in the US from May 2012 to May 2013 was 189,917, using seasonally adjusted data, while the average from May 2013 to May 2014 was 196,833, or increase by 3.6 percent. This blog calculates the effective labor force of the US at 162.430 million in May 2013 and 163.926 million in May 2014 (Table I-4), for growth of 1.496 million at average 124,667 per month. The difference between the average increase of 196,833 new private nonfarm jobs per month in the US from May 2013 to May 2014 and the 124,667 average monthly increase in the labor force from May 2013 to May 2014 is 72,166 monthly new jobs net of absorption of new entrants in the labor force. There are 26.618 million in job stress in the US currently. Creation of 72,166 new jobs per month net of absorption of new entrants in the labor force would require 369 months to provide jobs for the unemployed and underemployed (26.618 million divided by 72,166) or 31 years (369 divided by 12). The civilian labor force of the US in May 2014 not seasonally adjusted stood at 155.841 million with 9.443 million unemployed or effectively 17.528 million unemployed in this blog’s calculation by inferring those who are not searching because they believe there is no job for them for effective labor force of 163.926 million. Reduction of one million unemployed at the current rate of job creation without adding more unemployment requires 1.2 years (1 million divided by product of 72,166 by 12, which is 865,992). Reduction of the rate of unemployment to 5 percent of the labor force would be equivalent to unemployment of only 7.792 million (0.05 times labor force of 155.841 million) for new net job creation of 1.651 million (9.443] million unemployed minus 7.792 million unemployed at rate of 5 percent) that at the current rate would take 1.9 years (1.651 million divided by 0.865992). Under the calculation in this blog, there are 17.528 million unemployed by including those who ceased searching because they believe there is no job for them and effective labor force of 163.926 million. Reduction of the rate of unemployment to 5 percent of the labor force would require creating 11.257 million jobs net of labor force growth that at the current rate would take 10.8 years (17.528 million minus 0.05(163.926 million) = 9.332 million divided by 0.865992, using LF PART 66.2% and Total UEM in Table I-4). These calculations assume that there are no more recessions, defying United States economic history with periodic contractions of economic activity when unemployment increases sharply. The number employed in May 2014 was 146.398 million (NSA) or 0.917 million fewer people with jobs relative to the peak of 147.315 million in Jul 2007 while the civilian noninstitutional population of ages 16 years and over increased from 231.958 million in Jul 2007 to 247.622 million in May 2014 or by 15.664 million. The number employed fell 0.6 percent from Jul 2007 to May 2014 while the noninstitutional civilian population of ages of 16 years and over, or those available for work, increased 6.8 percent. There is actually not sufficient job creation in merely absorbing new entrants in the labor force because of those dropping from job searches, worsening the stock of unemployed or underemployed in involuntary part-time jobs.
There is current interest in past theories of “secular stagnation.” Alvin H. Hansen (1939, 4, 7; see Hansen 1938, 1941; for an early critique see Simons 1942) argues:
“Not until the problem of full employment of our productive resources from the long-run, secular standpoint was upon us, were we compelled to give serious consideration to those factors and forces in our economy which tend to make business recoveries weak and anaemic (sic) and which tend to prolong and deepen the course of depressions. This is the essence of secular stagnation-sick recoveries which die in their infancy and depressions which feed on them-selves and leave a hard and seemingly immovable core of unemployment. Now the rate of population growth must necessarily play an important role in determining the character of the output; in other words, the com-position of the flow of final goods. Thus a rapidly growing population will demand a much larger per capita volume of new residential building construction than will a stationary population. A stationary population with its larger proportion of old people may perhaps demand more personal services; and the composition of consumer demand will have an important influence on the quantity of capital required. The demand for housing calls for large capital outlays, while the demand for personal services can be met without making large investment expenditures. It is therefore not unlikely that a shift from a rapidly growing population to a stationary or declining one may so alter the composition of the final flow of consumption goods that the ratio of capital to output as a whole will tend to decline.”
The argument that anemic population growth causes “secular stagnation” in the US (Hansen 1938, 1939, 1941) is as misplaced currently as in the late 1930s (for early dissent see Simons 1942). There is currently population growth in the ages of 16 to 24 years but not enough job creation and discouragement of job searches for all ages (http://cmpassocregulationblog.blogspot.com/2014/05/rules-discretionary-authorities-and.html). The proper explanation is not in secular stagnation but in cyclically slow growth. The US maintained growth at 3.0 percent on average over entire cycles with expansions at higher rates compensating for contractions. Growth at trend in the entire cycle from IVQ2007 to IQ2014 would have accumulated to 21.2 percent. GDP in IQ2014 would be $18,172.7 billion (in constant dollars of 2009) if the US had grown at trend, which is higher by $2,269.8 billion than actual $15,902.9 billion. There are about two trillion dollars of GDP less than at trend, explaining the 26.6 million unemployed or underemployed equivalent to actual unemployment of 16.2 percent of the effective labor force (Section I and earlier http://cmpassocregulationblog.blogspot.com/2014/05/financial-volatility-mediocre-cyclical.html). US GDP in IQ2014 is 12.5 percent below than at trend. US GDP grew from $14,996.1 billion in IVQ2007 in constant dollars to $15,902.9 billion in IQ2014 or 6.0 percent at the average annual equivalent rate of 0.9 percent. The US missed the opportunity to grow at higher rates during the expansion and it is difficult to catch up because growth rates in the final periods of expansions tend to decline. The US missed the opportunity for recovery of output and employment always afforded in the first four quarters of expansion from recessions. Zero interest rates and quantitative easing were not required or present in successful cyclical expansions and in secular economic growth at 3.0 percent per year and 2.0 percent per capita as measured by Lucas (2011May). There is cyclical uncommonly slow growth in the US instead of allegations of secular stagnation. This is merely another case of theory without reality with dubious policy proposals. Subsection IA4 Job Creation analyzes the types of jobs created, which are lower paying than earlier. Average hourly earnings in May 2014 were $24.38 seasonally adjusted (SA), increasing 2.0 percent not seasonally adjusted (NSA) relative to May 2013 and increasing 0.2 percent relative to Mar 2014 seasonally adjusted. In Apr 2014, average hourly earnings seasonally adjusted were $24.33, increasing 1.9 percent relative to Apr 2013 not seasonally adjusted and increasing 0.0 percent seasonally adjusted relative to Ma 2014. These are nominal changes in workers’ wages. The following row “average hourly earnings in constant dollars” provides hourly wages in constant dollars calculated by the BLS or what is called “real wages” adjusted for inflation. Data are not available for May 2013 because the prices indexes of the BLS for May 2014 will only be released on Jun 17, 2014 (http://www.bls.gov/cpi/), which will be covered in this blog’s comment on Jun 22, 2014, together with world inflation. The second column provides changes in real wages for Apr 2014. Average hourly earnings adjusted for inflation or in constant dollars decreased 0.1 percent in Apr 2014 relative to Apr 2013 but have been decreasing during multiple months. World inflation waves in bouts of risk aversion (http://cmpassocregulationblog.blogspot.com/2014/05/world-inflation-waves-squeeze-of.html) mask declining trend of real wages. The fractured labor market of the US is characterized by high levels of unemployment and underemployment together with falling real wages or wages adjusted for inflation (Section IB and earlier http://cmpassocregulationblog.blogspot.com/2014/05/financial-volatility-mediocre-cyclical.html). The following section IB Stagnating Real Wages provides more detailed analysis. Average weekly hours of US workers seasonally adjusted remained virtually unchanged at 34.5. Another headline number widely followed is the unemployment rate or number of people unemployed as percent of the labor force. The unemployment rate calculated in the household survey did not change from 6.3 percent in Apr 2014 to 6.3 percent in May 2014, seasonally adjusted. This blog provides with every employment situation report the number of people in the US in job stress or unemployed plus underemployed calculated without seasonal adjustment (NSA) at 26.6 million in May 2014 and 27.5 million in Mar 2014. The final row in Table I-1 provides the number in job stress as percent of the actual labor force calculated at 16.2 percent in May 2014 and 16.8 percent in Apr 2014. Almost one in every five workers in the US is unemployed or underemployed. There is socio-economic stress in the combination of adverse events and cyclical performance:
- Mediocre economic growth below potential and long-term trend, resulting in idle productive resources with GDP two trillion dollars below trend (http://cmpassocregulationblog.blogspot.com/2014/06/financial-instability-mediocre-cyclical.html). US GDP grew at the average rate of 3.3 percent per year from 1929 to 2013 with similar performance in whole cycles of contractions and expansions but only at 1.0 percent per year on average from 2007 to 2013
- Private fixed investment declining 3.5 percent in the entire cycle from IVQ2007 to IQ2014 (http://cmpassocregulationblog.blogspot.com/2014/06/financial-instability-mediocre-cyclical.html)
- Twenty seven million or 16.2 percent of the effective labor force unemployed or underemployed in involuntary part-time jobs with stagnating or declining real wages (Section I and earlier http://cmpassocregulationblog.blogspot.com/2014/05/financial-volatility-mediocre-cyclical.html)
- Stagnating real disposable income per person or income per person after inflation and taxes (http://cmpassocregulationblog.blogspot.com/2014/06/financial-instability-mediocre-cyclical.html)
- Depressed hiring that does not afford an opportunity for reducing unemployment/underemployment and moving to better-paid jobs (http://cmpassocregulationblog.blogspot.com/2014/05/rules-discretionary-authorities-and.html)
- Unsustainable government deficit/debt and balance of payments deficit (http://cmpassocregulationblog.blogspot.com/2014/02/theory-and-reality-of-cyclical-slow.html http://cmpassocregulationblog.blogspot.com/2014/03/interest-rate-risks-world-inflation.html http://cmpassocregulationblog.blogspot.com/2013/12/tapering-quantitative-easing-mediocre.html and earlier http://cmpassocregulationblog.blogspot.com/2013/09/duration-dumping-and-peaking-valuations.html)
- Worldwide waves of inflation (http://cmpassocregulationblog.blogspot.com/2014/05/world-inflation-waves-squeeze-of.html)
- Deteriorating terms of trade and net revenue margins of production across countries in squeeze of economic activity by carry trades induced by zero interest rates (http://cmpassocregulationblog.blogspot.com/2014/05/world-inflation-waves-squeeze-of.html)
- Financial repression of interest rates and credit affecting the most people without means and access to sophisticated financial investments with likely adverse effects on income distribution and wealth disparity (http://cmpassocregulationblog.blogspot.com/2014/06/financial-instability-mediocre-cyclical.html)
- 47 million in poverty and 48 million without health insurance with family income adjusted for inflation regressing to 1995 levels (http://cmpassocregulationblog.blogspot.com/2013/09/duration-dumping-and-peaking-valuations.html
- Net worth of households and nonprofits organizations increasing by 7.3 percent after adjusting for inflation in the entire cycle from IVQ2007 to IVQ2013 when it would have been over 20.3 percent under trend of 3.1 percent per year in real terms from 1945 to 2013 (http://cmpassocregulationblog.blogspot.com/2014/03/global-financial-risks-recovery-without.html and earlier http://cmpassocregulationblog.blogspot.com/2013/12/collapse-of-united-states-dynamism-of.html). Financial assets increased $13.0 trillion while nonfinancial assets fell $729.2 billion with likely concentration of wealth in those with access to sophisticated financial investments.
Table I-1, US, Summary of the Employment Situation Report SA
| May 2014 | Apr 2014 | |
| New Nonfarm Payroll Jobs | 217,000 | 282,000 |
| New Private Payroll Jobs | 216,000 | 270,000 |
| Average Hourly Earnings | May 14 $24.38 SA ∆% May 14/May 13 NSA: 2.0 ∆% May 14/Apr 13 SA: 0.2 | Apr 14 $24.33 SA ∆% Apr 14/ Apr 13 NSA: 1.9 ∆% Mar 14/Feb 14 SA: 0.0 |
| Average Hourly Earnings in Constant Dollars | ∆% Apr 2014/Apr 2013 NSA: -0.1 | |
| Average Weekly Hours | 34.5 SA 34.4 NSA | 34.5 SA 34.4 NSA |
| Unemployment Rate Household Survey % of Labor Force SA | 6.3 | 6.3 |
| Number in Job Stress Unemployed and Underemployed Blog Calculation | 26.6 million NSA | 27.4 million NSA |
| In Job Stress as % Labor Force | 16.2 NSA | 16.8 NSA |
Source: US Bureau of Labor Statistics Source: US Bureau of Labor Statistics
The Bureau of Labor Statistics (BLS) of the US Department of Labor provides both seasonally adjusted (SA) and not-seasonally adjusted (NSA) or unadjusted data with important uses (Bureau of Labor Statistics 2012Feb3; 2011Feb11):
“Most series published by the Current Employment Statistics program reflect a regularly recurring seasonal movement that can be measured from past experience. By eliminating that part of the change attributable to the normal seasonal variation, it is possible to observe the cyclical and other nonseasonal movements in these series. Seasonally adjusted series are published monthly for selected employment, hours, and earnings estimates.”
Requirements of using best available information and updating seasonality factors affect the comparability over time of United States employment data. In the first month of the year, the BLS revises data for several years by adjusting benchmarks and seasonal factors (page 4 at http://www.bls.gov/news.release/pdf/empsit.pdf ), which is the case of the data for Jan 2014 released on Feb 7, 2014:
“In accordance with annual practice, the establishment survey data released today [Feb 7, 2014] have been benchmarked to reflect comprehensive counts of payroll jobs for March 2013. These counts are derived principally from the Quarterly Census of Employment and Wages (QCEW), which enumerates jobs covered by the UI tax system. The benchmark process results in revisions to not seasonally adjusted data from April 2012 forward. Seasonally adjusted data from January 2009 forward are subject to revision. In addition, data for some series prior to 2009, both seasonally adjusted and unadjusted, incorporate revisions.”
The range of differences in total nonfarm employment in revisions in Table A of the employment situation report for Jan 2014 (page 5 at http://www.bls.gov/news.release/pdf/empsit.pdf) is from minus 1,000 for Mar 2013 to 274,000 for Nov 2013. There are also adjustments of population that affect comparability of labor statistics over time (page 6 at http://www.bls.gov/news.release/pdf/empsit.pdf):
“Effective with data for January 2014, updated population estimates have been used in the household survey. Population estimates for the household survey are developed by the U.S. Census Bureau. Each year, the Census Bureau updates the estimates to reflect new information and assumptions about the growth of the population since the previous decennial census. The change in population reflected in the new estimates results from adjustments for net international migration, updated vital statistics and other information, and some methodological changes in the estimation process.
In accordance with usual practice, BLS will not revise the official household survey estimates for
December 2013 and earlier months. To show the impact of the population adjustments, however, differences in selected December 2013 labor force series based on the old and new population estimates are shown in table B.
The adjustments increased the estimated size of the civilian noninstitutional population in December by 2,000, the civilian labor force by 24,000, employment by 22,000, and unemployment by 2,000. The number of persons not in the labor force was reduced by 22,000. The total unemployment rate, employment-population ratio, and labor force participation rate were unaffected.
Data users are cautioned that these annual population adjustments can affect the comparability of household data series over time. Table C shows the effect of the introduction of new population estimates on the comparison of selected labor force measures between December 2013 and January 2014. Additional information on the population adjustments and their effect on national labor force estimates is available at www.bls.gov/cps/cps14adj.pdf (emphasis added).”
There are also adjustments of benchmarks and seasonality factors for establishment data that affect comparability over time (page 1 at http://www.bls.gov/news.release/pdf/empsit.pdf):
“Establishment survey data have been revised as a result of the annual benchmarking process and the updating of seasonal adjustment factors. Also, household survey data for January 2014 reflect updated population estimates. See the notes beginning on page 4 for more information about these changes.”
All comparisons over time are affected by yearly adjustments of benchmarks and seasonality factors. All data in this blog comment use revised data released by the BLS on Feb 7, 2014 (http://www.bls.gov/).
IA2 Number of People in Job Stress. There are two approaches to calculating the number of people in job stress. The first approach consists of calculating the number of people in job stress unemployed or underemployed with the raw data of the employment situation report as in Table I-2. The data are seasonally adjusted (SA). The first three rows provide the labor force and unemployed in millions and the unemployment rate of unemployed as percent of the labor force. There is decrease in the number unemployed from 10.486 million in Mar 2014 to 9.753 million in Apr 2014 and increase to 9.799 million in May 2014. The rate of unemployment decreased from 6.7 percent in Mar 2014 to 6.3 percent in Apr 2014 and 6.3 percent in May 2014. An important aspect of unemployment is its persistence for more than 27 weeks with 3.374 million in May 2014, corresponding to 34.4 percent of the unemployed. The longer the period of unemployment the lower are the chances of finding another job with many long-term unemployed ceasing to search for a job. Another key characteristic of the current labor market is the high number of people trying to subsist with part-time jobs because they cannot find full-time employment or part-time for economic reasons. The BLS explains as follows: “these individuals were working part time because their hours had been cut back or because they were unable to find full-time work” (http://www.bls.gov/news.release/pdf/empsit.pdf 2). The number of part-time for economic reasons increased from 7.411 million in Mar 2014 to 7.465 million in Apr 2014 and decreased to 7.269 million in May 2014. Another important fact is the marginally attached to the labor force. The BLS explains as follows: “these individuals were not in the labor force, wanted and were available for work, and had looked for a job sometime in the prior 12 months. They were not counted as unemployed because they had not searched for work in the 4 weeks preceding the survey” (http://www.bls.gov/news.release/pdf/empsit.pdf 2). The number in job stress unemployed or underemployed of 19.198 million in May 2014 is composed of 9.799 million unemployed (of whom 3.374 million, or 34.4 percent, unemployed for 27 weeks or more) compared with 9.753 million unemployed in Apr 2014 (of whom 3.452 million, or 35.4 percent, unemployed for 27 weeks or more), 7.269 million employed part-time for economic reasons in May 2014 (who suffered reductions in their work hours or could not find full-time employment) compared with 7.465 million in Apr 2014 and 2.130 million who were marginally attached to the labor force in May 2014 (who were not in the labor force but wanted and were available for work) compared with 2.160 million in Apr 2014. The final row in Table I-2 provides the number in job stress as percent of the labor force: 12.3 percent in May 2014, which is close to 12.5 percent in Apr 2014 and 12.8 percent in May 2014.
Table I-2, US, People in Job Stress, Millions and % SA
| 2014 | May 2014 | Apr 2014 | Mar 2014 |
| Labor Force Millions | 155.613 | 155.421 | 156.277 |
| Unemployed | 9.799 | 9.753 | 10.486 |
| Unemployment Rate (unemployed as % labor force) | 6.3 | 6.3 | 6.7 |
| Unemployed ≥27 weeks | 3.374 | 3.452 | 3.739 |
| Unemployed ≥27 weeks % | 34.4 | 35.4 | 35.7 |
| Part Time for Economic Reasons | 7.269 | 7.465 | 7.411 |
| Marginally | 2.130 | 2.160 | 2.168 |
| Job Stress | 19.198 | 19.378 | 20.065 |
| In Job Stress as % Labor Force | 12.3 | 12.5 | 12.8 |
Job Stress = Unemployed + Part Time Economic Reasons + Marginally Attached Labor Force
Source: US Bureau of Labor Statistics
http://www.bls.gov/cps/
Table I-3 repeats the data in Table I-2 but including Feb and additional data. What really matters is the number of people with jobs or the total employed, representing the opportunity for exit from unemployment. The final row of Table I-3 provides people employed as percent of the population or employment to population ratio. The number has remained relatively constant around 58.7 percent, reaching 58.8 in Jan 2014, 58.9 in Feb 2014, 58.9 in Mar 2014 and 58.9 in May 2014. The employment to population ratio fell from an annual level of 63.1 percent in 2006 to 58.6 percent in 2012 and 58.6 percent in 2013 with the lowest level at 58.4 percent in 2011.
Table I-3, US, Unemployment and Underemployment, SA, Millions and Percent
| May 2014 | Apr 2014 | Mar 2014 | Feb 2014 | |
| Labor Force | 155.613 | 155.421 | 156.227 | 155.724 |
| Participation Rate | 62.8 | 62.8 | 63.2 | 63.0 |
| Unemployed | 9.799 | 9.753 | 10.486 | 10.459 |
| UNE Rate % | 6.3 | 6.3 | 6.7 | 6.7 |
| Part Time Economic Reasons | 7.269 | 7.465 | 7.411 | 7.186 |
| Marginally Attached to Labor Force | 2.130 | 2.160 | 2.168 | 2.303 |
| In Job Stress | 19.198 | 19.378 | 20.065 | 19,948 |
| In Job Stress % Labor Force | 12.3 | 12.5 | 12.8 | 12.8 |
| Employed | 145.814 | 145.669 | 145.742 | 145.266 |
| Employment % Population | 58.9 | 58.9 | 58.9 | 58.8 |
Job Stress = Unemployed + Part Time Economic Reasons + Marginally Attached Labor Force
Source: US Bureau of Labor Statistics
The balance of this section considers the second approach. Charts I-1 to I-12 explain the reasons for considering another approach to calculating job stress in the US. Chart I-1 of the Bureau of Labor Statistics provides the level of employment in the US from 2001 to 2014. There was a big drop of the number of people employed from 147.315 million at the peak in Jul 2007 (NSA) to 136.809 million at the trough in Jan 2010 (NSA) with 10.506 million fewer people employed. Recovery has been anemic compared with the shallow recession of 2001 that was followed by nearly vertical growth in jobs. The number employed in May 2014 was 146.398 million (NSA) or 0.917 million fewer people with jobs relative to the peak of 147.315 million in Jul 2007 while the civilian noninstitutional population of ages 16 years and over increased from 231.958 million in Jul 2007 to 247.622 million in Apr 2014 or by 15.664 million. The number employed fell 0.6 percent from Jul 2007 to May 2014 while the noninstitutional civilian population of ages of 16 years and over, or those available for work, increased 6.8 percent. There is actually not sufficient job creation in merely absorbing new entrants in the labor force because of those dropping from job searches, worsening the stock of unemployed or underemployed in involuntary part-time jobs.
Chart I-1, US, Employed, Thousands, SA, 2001-2014
Source: Bureau of Labor Statistics
Chart I-2 of the Bureau of Labor Statistics provides 12-month percentage changes of the number of people employed in the US from 2001 to 2014. There was recovery since 2010 but not sufficient to recover lost jobs. Many people in the US who had jobs before the global recession are not working now.
Chart I-2, US, Employed, 12-Month Percentage Change NSA, 2001-2014
Source: Bureau of Labor Statistics
The foundation of the second approach derives from Chart II-3 of the Bureau of Labor Statistics providing the level of the civilian labor force in the US. The civilian labor force consists of people who are available and willing to work and who have searched for employment recently. The labor force of the US grew 9.4 percent from 142.828 million in Jan 2001 to 156.255 million in Jul 2009 but is lower at 155.841 million in Apr 2014, all numbers not seasonally adjusted. Chart I-3 shows the flattening of the curve of expansion of the labor force and its decline in 2010 and 2011. The ratio of the labor force of 154.871 million in Jul 2007 to the noninstitutional population of 231.958 million in Jul 2007 was 66.8 percent while the ratio of the labor force of 155.841 million in Apr 2014 to the noninstitutional population of 247.622 million in May 2014 was 62.9 percent. The labor force of the US in May 2014 corresponding to 66.8 percent of participation in the population would be 165.411 million (0.668 x 247.622). The difference between the measured labor force in May 2014 of 155.841 million and the labor force in Apr 2014 with participation rate of 66.8 percent (as in Jul 2007) of 165.411 million is 9.570 million. The level of the labor force in the US has stagnated and is 9.570 million lower than what it would have been had the same participation rate been maintained. Millions of people have abandoned their search for employment because they believe there are no jobs available for them. The key issue is whether the decline in participation of the population in the labor force is the result of people giving up on finding another job.
Chart I-3, US, Civilian Labor Force, Thousands, SA, 2001-2014
Source: US Bureau of Labor Statistics http://www.bls.gov/data/
Chart I-4 of the Bureau of Labor Statistics provides 12-month percentage changes of the level of the labor force in the US. The rate of growth fell almost instantaneously with the global recession and became negative from 2009 to 2011. The labor force of the US collapsed and did not recover. Growth in the beginning of the summer originates in younger people looking for jobs in the summer after graduation or during school recess.
Chart I-4, US, Civilian Labor Force, Thousands, NSA, 12-month Percentage Change, 2001-2014
Source: US Bureau of Labor Statistics http://www.bls.gov/data/
Chart I-5 of the Bureau of Labor Statistics provides the labor force participation rate in the US or labor force as percent of the population. The labor force participation rate of the US fell from 66.8 percent in Jan 2001 to 62.9 percent NSA in Apr 2014, all numbers not seasonally adjusted. The annual labor force participation rate for 1979 was 63.7 percent and also 63.7 percent in Nov 1980 during sharp economic contraction. This comparison is further elaborated below. Chart I-5 shows an evident downward trend beginning with the global recession that has continued throughout the recovery beginning in IIIQ2009. The critical issue is whether people left the workforce of the US because they believe there is no longer a job for them.
Chart I-5, Civilian Labor Force Participation Rate, Percent of Population in Labor Force SA, 2001-2014
Source: US Bureau of Labor Statistics http://www.bls.gov/data/
Chart I-6 of the Bureau of Labor Statistics provides the level of unemployed in the US. The number unemployed rose from the trough of 6.272 million NSA in Oct 2006 to the peak of 16.147 million in Jan 2010, declining to 13.400 million in Jul 2012, 12.696 million in Aug 2012 and 11.741 million in Sep 2012. The level unemployed fell to 11.741 million in Oct 2012, 11.404 million in Nov 2012, 11.844 million in Dec 2012, 13.181 million in Jan 2013, 12.500 million in Feb 2013 and 9.984 million in Dec 2013. The level of unemployment reached 9.443 million in May 2014, all numbers not seasonally adjusted.
Chart I-6, US, Unemployed, Thousands, SA, 2001-2014
Source: US Bureau of Labor Statistics http://www.bls.gov/data/
Chart I-7 of the Bureau of Labor Statistics provides the rate of unemployment in the US or unemployed as percent of the labor force. The rate of unemployment of the US rose from 4.7 percent in Jan 2001 to 6.5 percent in Jun 2003, declining to 4.1 percent in Oct 2006. The rate of unemployment jumped to 10.6 percent in Jan 2010 and declined to 7.6 percent in Dec 2012 but increased to 8.5 percent in Jan 2013 and 8.1 percent in Feb 2013, falling back to 7.3 percent in May 2013 and 7.8 percent in Jun 2013, all numbers not seasonally adjusted. The rate of unemployment not seasonally adjusted stabilized at 7.7 percent in Jul 2013 and fell to 6.5 percent in Dec 2013 and 6.1 percent in May 2014.
Chart I-7, US, Unemployment Rate, SA, 2001-2014
Source: Bureau of Labor Statistics
Chart I-8 of the Bureau of Labor Statistics provides 12-month percentage changes of the level of unemployed. There was a jump of 81.8 percent in Apr 2009 with subsequent decline and negative rates since 2010. On an annual basis, the level of unemployed rose 59.8 percent in 2009 and 26.1 percent in 2008 with increase of 3.9 percent in 2010, decline of 7.3 percent in 2011 and decrease of 9.0 percent in 2012. The annual rate of unemployment decreased 8.4 percent in 2013 and fell 16.4 percent in May 2014 relative to May 2013.
Chart I-8, US, Unemployed, 12-month Percentage Change, NSA, 2001-2014
Source: US Bureau of Labor Statistics http://www.bls.gov/data/
Chart I-9 of the Bureau of Labor Statistics provides the number of people in part-time occupations because of economic reasons, that is, because they cannot find full-time employment. The number underemployed in part-time occupations not seasonally adjusted rose from 3.732 million in Jan 2001 to 5.270 million in Jan 2004, falling to 3.787 million in Apr 2006. The number underemployed seasonally adjusted jumped to 9.114 million in Nov 2009, falling to 8.177 million in Dec 2011 but increasing to 8.228 million in Jan 2012 and 8.133 million in Feb 2012 but then falling to 7.929 million in Dec 2012 and increasing to 8.180 million in Jul 2013. The number employed part-time for economic reasons seasonally adjusted reached 7.771 million in Dec 2013 and 7.269 million in May 2014. Without seasonal adjustment, the number employed part-time for economic reasons reached 9.354 million in Dec 2009, declining to 8.918 million in Jan 2012 and 8.166 million in Dec 2012 but increasing to 8.324 million in Jul 2013. The number employed part-time for economic reasons NSA stood at 7.990 million in Dec 2013 and 6.960 million in May 2014. The longer the period in part-time jobs the lower are the chances of finding another full-time job.
Chart I-9, US, Part-Time for Economic Reasons, Thousands, SA, 2001-2014
Source: US Bureau of Labor Statistics http://www.bls.gov/data/
Chart I-10 of the Bureau of Labor Statistics repeats the behavior of unemployment. The 12-month percentage change of the level of people at work part-time for economic reasons jumped 84.7 percent in Mar 2009 and declined subsequently. The declines have been insufficient to reduce significantly the number of people who cannot shift from part-time to full-time employment. On an annual basis, the number of part-time for economic reasons increased 33.5 percent in 2008 and 51.7 percent in 2009, declining 0.4 percent in 2010, 3.5 percent in 2011 and 5.1 percent in 2012. The annual number of part-time for economic reasons decreased 2.3 percent in 2013. The number of part-time for economic reasons fell 8.6 percent in May 2014 relative to a year earlier.
Chart I-10, US, Part-Time for Economic Reasons NSA 12-Month Percentage Change, 2001-2014
Source: US Bureau of Labor Statistics http://www.bls.gov/data/
Chart I-11 of the Bureau of Labor Statistics provides the same pattern of the number marginally attached to the labor force jumping to significantly higher levels during the global recession and remaining at historically high levels. The number marginally attached to the labor force not seasonally adjusted increased from 1.295 million in Jan 2001 to 1.691 million in Feb 2004. The number of marginally attached to the labor force fell to 1.299 million in Sep 2006 and increased to 2.609 million in Dec 2010 and 2.800 million in Jan 2011. The number marginally attached to the labor force was 2.540 million in Dec 2011, increasing to 2.809 million in Jan 2012, falling to 2.608 million in Feb 2012. The number marginally attached to the labor force fell to 2.352 million in Mar 2012, 2.363 million in Apr 2012, 2.423 million in May 2012, 2.483 million in Jun 2012, 2.529 million in Jul 2012 and 2.561 million in Aug 2012. The number marginally attached to the labor force fell to 2.517 million in Sep 2012, 2.433 million in Oct 2012, 2.505 million in Nov 2012 and 2.427 million in in Dec 2013. The number marginally attached to the labor force reached 2.130 million in May 2014.
Chart I-11, US, Marginally Attached to the Labor Force, Thousands, NSA, 2001-2014
Source: US Bureau of Labor Statistics http://www.bls.gov/data/
Chart I-12 provides 12-month percentage changes of the marginally attached to the labor force from 2001 to 2014. There was a jump of 56.1 percent in May 2009 during the global recession followed by declines in percentage changes but insufficient negative changes. On an annual basis, the number of marginally attached to the labor force increased in four consecutive years: 15.7 percent in 2008, 37.9 percent in 2009, 11.7 percent in 2010 and 3.5 percent in 2011. The number marginally attached to the labor force fell 2.2 percent on annual basis in 2012 but increased 2.9 percent in the 12 months ending in Dec 2012, fell 13.0 percent in the 12 months ending in Jan 2013, falling 10.7 percent in the 12 months ending in May 2013. The number marginally attached to the labor force increased 4.0 percent in the 12 months ending in Jun 2013 and fell 4.5 percent in the 12 months ending in Jul 2013 and 8.6 percent in the 12 months ending in Aug 2013. The annual number of marginally attached to the labor force fell 6.2 percent in 2013. The number marginally attached to the labor force fell 7.2 percent in the 12 months ending in Dec 2013 and 1.6 percent in the 12 months ending in May 2014.
Chart I-12, US, Marginally Attached to the Labor Force 12-Month Percentage Change, NSA, 2001-2014
Source: US Bureau of Labor Statistics http://www.bls.gov/data/
Table I-4 consists of data and additional calculations using the BLS household survey, illustrating the possibility that the actual rate of unemployment could be 10.7 percent and the number of people in job stress could be around 26.6 million, which is 16.2 percent of the effective labor force. The first column provides for 2006 the yearly average population (POP), labor force (LF), participation rate or labor force as percent of population (PART %), employment (EMP), employment population ratio (EMP/POP %), unemployment (UEM), the unemployment rate as percent of labor force (UEM/LF Rate %) and the number of people not in the labor force (NLF). All data are unadjusted or not-seasonally-adjusted (NSA). The numbers in column 2006 are averages in millions while the monthly numbers for May 2013, Apr 2014 and May 2014 are in thousands, not seasonally adjusted. The average yearly participation rate of the population in the labor force was in the range of 66.0 percent minimum to 67.1 percent maximum between 2000 and 2006 with the average of 66.4 percent (ftp://ftp.bls.gov/pub/special.requests/lf/aa2006/pdf/cpsaat1.pdf). Table I-4b provides the yearly labor force participation rate from 1979 to 2014. The objective of Table I-4 is to assess how many people could have left the labor force because they do not think they can find another job. Row “LF PART 66.2 %” applies the participation rate of 2006, almost equal to the rates for 2000 to 2006, to the noninstitutional civilian population in May 2013, Apr 2014 and May 2014 to obtain what would be the labor force of the US if the participation rate had not changed. In fact, the participation rate fell to 63.5 percent by May 2013 and was 62.6 percent in Apr 2014 and 62.9 percent in May 2014, suggesting that many people simply gave up on finding another job. Row “∆ NLF UEM” calculates the number of people not counted in the labor force because they could have given up on finding another job by subtracting from the labor force with participation rate of 66.2 percent (row “LF PART 66.2%”) the labor force estimated in the household survey (row “LF”). Total unemployed (row “Total UEM”) is obtained by adding unemployed in row “∆NLF UEM” to the unemployed of the household survey in row “UEM.” The row “Total UEM%” is the effective total unemployed “Total UEM” as percent of the effective labor force in row “LF PART 66.2%.” The results are that:
- there are an estimated 8.085 million unemployed in May 2014 who are not counted because they left the labor force on their belief they could not find another job (∆NLF UEM), that is, they dropped out of their job searches
- the total number of unemployed is effectively 17.528 million (Total UEM) and not 9.443 million (UEM) of whom many have been unemployed long term
- the rate of unemployment is 10.7 percent (Total UEM%) and not 6.1 percent, not seasonally adjusted, or 6.3 percent seasonally adjusted
- the number of people in job stress is close to 26.6 million by adding the 8.085 million leaving the labor force because they believe they could not find another job.
The row “In Job Stress” in Table I-4 provides the number of people in job stress not seasonally adjusted at 26.618 million in May 2014, adding the total number of unemployed (“Total UEM”), plus those involuntarily in part-time jobs because they cannot find anything else (“Part Time Economic Reasons”) and the marginally attached to the labor force (“Marginally attached to LF”). The final row of Table I-4 shows that the number of people in job stress is equivalent to 16.2 percent of the labor force in May 2014. The employment population ratio “EMP/POP %” dropped from 62.9 percent on average in 2006 to 58.9 percent in May 2013, 58.9 percent in Apr 2014 and 59.1 percent in May 2014. The number employed in May 2014 was 146.398 million (NSA) or 0.917 million fewer people with jobs relative to the peak of 147.315 million in Jul 2007 while the civilian noninstitutional population of ages 16 years and over increased from 231.958 million in Jul 2007 to 247.622 million in Apr 2014 or by 15.664 million. The number employed fell 0.6 percent from Jul 2007 to May 2014 while the noninstitutional civilian population of ages of 16 years and over, or those available for work, increased 6.8 percent. There is actually not sufficient job creation in merely absorbing new entrants in the labor force because of those dropping from job searches, worsening the stock of unemployed or underemployed in involuntary part-time jobs.
The argument that anemic population growth causes “secular stagnation” in the US (Hansen 1938, 1939, 1941) is as misplaced currently as in the late 1930s (for early dissent see Simons 1942). There is currently population growth in the ages of 16 to 24 years but not enough job creation and discouragement of job searches for all ages (http://cmpassocregulationblog.blogspot.com/2014/05/rules-discretionary-authorities-and.html). This is merely another case of theory without reality with dubious policy proposals. The number of hiring relative to the number unemployed measures the chances of becoming employed. The number of hiring in the US economy has declined by 10 million and does not show signs of increasing in an unusual recovery without hiring (http://cmpassocregulationblog.blogspot.com/2014/05/rules-discretionary-authorities-and.html). The US maintained growth at 3.0 percent on average over entire cycles with expansions at higher rates compensating for contractions. Growth at trend in the entire cycle from IVQ2007 to IQ2014 would have accumulated to 21.2 percent. GDP in IQ2014 would be $18,172.7 billion (in constant dollars of 2009) if the US had grown at trend, which is higher by $2,269.8 billion than actual $15,902.9 billion. There are about two trillion dollars of GDP less than at trend, explaining the 26.6 million unemployed or underemployed equivalent to actual unemployment of 16.2 percent of the effective labor force (Section I and earlier http://cmpassocregulationblog.blogspot.com/2014/05/financial-volatility-mediocre-cyclical.html). US GDP in IQ2014 is 12.5 percent below than at trend. US GDP grew from $14,996.1 billion in IVQ2007 in constant dollars to $15,902.9 billion in IQ2014 or 6.0 percent at the average annual equivalent rate of 0.9 percent. The US missed the opportunity to grow at higher rates during the expansion and it is difficult to catch up because growth rates in the final periods of expansions tend to decline. The US missed the opportunity for recovery of output and employment always afforded in the first four quarters of expansion from recessions. Zero interest rates and quantitative easing were not required or present in successful cyclical expansions and in secular economic growth at 3.0 percent per year and 2.0 percent per capita as measured by Lucas (2011May). There is cyclical uncommonly slow growth in the US instead of allegations of secular stagnation.
Table I-4, US, Population, Labor Force and Unemployment, NSA
| 2006 | May 2013 | Apr 2014 | May 2014 | |
| POP | 229 | 245,363 | 247,439 | 247,622 |
| LF | 151 | 155,734 | 154,845 | 155,841 |
| PART% | 66.2 | 63.5 | 62.6 | 62.9 |
| EMP | 144 | 144,432 | 145,767 | 146,398 |
| EMP/POP% | 62.9 | 58.9 | 58.9 | 59.1 |
| UEM | 7 | 11,302 | 9,079 | 9,443 |
| UEM/LF Rate% | 4.6 | 7.3 | 5.9 | 6.1 |
| NLF | 77 | 89,629 | 92,594 | 91,782 |
| LF PART 66.2% | 162,430 | 163,805 | 163,926 | |
| ∆NLF UEM | 6,696 | 8,960 | 8,085 | |
| Total UEM | 17,998 | 18,039 | 17,528 | |
| Total UEM% | 11.6 | 11.0 | 10.7 | |
| Part Time Economic Reasons | 7,618 | 7,243 | 6,960 | |
| Marginally Attached to LF | 2,164 | 2,160 | 2,130 | |
| In Job Stress | 27,780 | 27,442 | 26,618 | |
| People in Job Stress as % Labor Force | 17.1 | 16.8 | 16.2 |
Pop: population; LF: labor force; PART: participation; EMP: employed; UEM: unemployed; NLF: not in labor force; ∆NLF UEM: additional unemployed; Total UEM is UEM + ∆NLF UEM; Total UEM% is Total UEM as percent of LF PART 66.2%; In Job Stress = Total UEM + Part Time Economic Reasons + Marginally Attached to LF
Note: the first column for 2006 is in average millions; the remaining columns are in thousands; NSA: not seasonally adjusted
The labor force participation rate of 66.2% in 2006 is applied to current population to obtain LF PART 66.2%; ∆NLF UEM is obtained by subtracting the labor force with participation of 66.2 percent from the household survey labor force LF; Total UEM is household data unemployment plus ∆NLF UEM; and total UEM% is total UEM divided by LF PART 66.2%
Source: US Bureau of Labor Statistics
In the analysis of Hansen (1939, 3) of secular stagnation, economic progress consists of growth of real income per person driven by growth of productivity. The “constituent elements” of economic progress are “(a) inventions, (b) the discovery and development of new territory and new resources, and (c) the growth of population” (Hansen 1939, 3). Secular stagnation originates in decline of population growth and discouragement of inventions. According to Hansen (1939, 2), US population grew by 16 million in the 1920s but grew by one half or about 8 million in the 1930s with forecasts at the time of Hansen’s writing in 1938 of growth of around 5.3 million in the 1940s. Hansen (1939, 2) characterized demography in the US as “a drastic decline in the rate of population growth. Hansen’s plea was to adapt economic policy to stagnation of population in ensuring full employment. In the analysis of Hansen (1939, 8), population caused half of the growth of US GDP per year. Growth of output per person in the US and Europe was caused by “changes in techniques and to the exploitation of new natural resources.” In this analysis, population caused 60 percent of the growth of capital formation in the US. Declining population growth would reduce growth of capital formation. Residential construction provided an important share of growth of capital formation. Hansen (1939, 12) argues that market power of imperfect competition discourages innovation with prolonged use of obsolete capital equipment. Trade unions would oppose labor-savings innovations. The combination of stagnating and aging population with reduced innovation caused secular stagnation. Hansen (1939, 12) concludes that there is role for public investments to compensate for lack of dynamism of private investment but with tough tax/debt issues.
The current application of Hansen’s (1938, 1939, 1941) proposition argues that secular stagnation occurs because full employment equilibrium can be attained only with negative real interest rates between minus 2 and minus 3 percent. Professor Lawrence H. Summers (2013Nov8) finds that “a set of older ideas that went under the phrase secular stagnation are not profoundly important in understanding Japan’s experience in the 1990s and may not be without relevance to America’s experience today” (emphasis added). Summers (2013Nov8) argues there could be an explanation in “that the short-term real interest rate that was consistent with full employment had fallen to -2% or -3% sometime in the middle of the last decade. Then, even with artificial stimulus to demand coming from all this financial imprudence, you wouldn’t see any excess demand. And even with a relative resumption of normal credit conditions, you’d have a lot of difficulty getting back to full employment.” The US economy could be in a situation where negative real rates of interest with fed funds rates close to zero as determined by the Federal Open Market Committee (FOMC) do not move the economy to full employment or full utilization of productive resources. Summers (2013Oct8) finds need of new thinking on “how we manage an economy in which the zero nominal interest rates is a chronic and systemic inhibitor of economy activity holding our economies back to their potential.”
Former US Treasury Secretary Robert Rubin (2014Jan8) finds three major risks in prolonged unconventional monetary policy of zero interest rates and quantitative easing: (1) incentive of delaying action by political leaders; (2) “financial moral hazard” in inducing excessive exposures pursuing higher yields of risker credit classes; and (3) major risks in exiting unconventional policy. Rubin (2014Jan8) proposes reduction of deficits by structural reforms that could promote recovery by improving confidence of business attained with sound fiscal discipline.
Professor John B. Taylor (2014Jan01, 2014Jan3) provides clear thought on the lack of relevance of Hansen’s contention of secular stagnation to current economic conditions. The application of secular stagnation argues that the economy of the US has attained full-employment equilibrium since around 2000 only with negative real rates of interest of minus 2 to minus 3 percent. At low levels of inflation, the so-called full-employment equilibrium of negative interest rates of minus 2 to minus 3 percent cannot be attained and the economy stagnates. Taylor (2014Jan01) analyzes multiple contradictions with current reality in this application of the theory of secular stagnation:
- Secular stagnation would predict idle capacity, in particular in residential investment when fed fund rates were fixed at 1 percent from Jun 2003 to Jun 2004. Taylor (2014Jan01) finds unemployment at 4.4 percent with house prices jumping 7 percent from 2002 to 2003 and 14 percent from 2004 to 2005 before dropping from 2006 to 2007. GDP prices doubled from 1.7 percent to 3.4 percent when interest rates were low from 2003 to 2005.
- Taylor (2014Jan01, 2014Jan3) finds another contradiction in the application of secular stagnation based on low interest rates because of savings glut and lack of investment opportunities. Taylor (2009) shows that there was no savings glut. The savings rate of the US in the past decade is significantly lower than in the 1980s.
- Taylor (2014Jan01, 2014Jan3) finds another contradiction in the low ratio of investment to GDP currently and reduced investment and hiring by US business firms.
- Taylor (2014Jan01, 2014Jan3) argues that the financial crisis and global recession were caused by weak implementation of existing regulation and departure from rules-based policies.
- Taylor (2014Jan01, 2014Jan3) argues that the recovery from the global recession was constrained by a change in the regime of regulation and fiscal/monetary policies.
In revealing research, Edward P. Lazear and James R. Spletzer (2012JHJul22) use the wealth of data in the valuable database and resources of the Bureau of Labor Statistics (http://www.bls.gov/data/) in providing clear thought on the nature of the current labor market of the United States. The critical issue of analysis and policy currently is whether unemployment is structural or cyclical. Structural unemployment could occur because of (1) industrial and demographic shifts and (2) mismatches of skills and job vacancies in industries and locations. Consider the aggregate unemployment rate, Y, expressed in terms of share si of a demographic group in an industry i and unemployment rate yi of that demographic group (Lazear and Spletzer 2012JHJul22, 5-6):
Y = ∑isiyi (1)
This equation can be decomposed for analysis as (Lazear and Spletzer 2012JHJul22, 6):
∆Y = ∑i∆siy*i + ∑i∆yis*i (2)
The first term in (2) captures changes in the demographic and industrial composition of the economy ∆si multiplied by the average rate of unemployment y*i , or structural factors. The second term in (2) captures changes in the unemployment rate specific to a group, or ∆yi, multiplied by the average share of the group s*i, or cyclical factors. There are also mismatches in skills and locations relative to available job vacancies. A simple observation by Lazear and Spletzer (2012JHJul22) casts intuitive doubt on structural factors: the rate of unemployment jumped from 4.4 percent in the spring of 2007 to 10 percent in October 2009. By nature, structural factors should be permanent or occur over relative long periods. The revealing result of the exhaustive research of Lazear and Spletzer (2012JHJul22) is:
“The analysis in this paper and in others that we review do not provide any compelling evidence that there have been changes in the structure of the labor market that are capable of explaining the pattern of persistently high unemployment rates. The evidence points to primarily cyclic factors.”
Table I-4b and Chart I-12-b provide the US labor force participation rate or percentage of the labor force in population. It is not likely that simple demographic trends caused the sharp decline during the global recession and failure to recover earlier levels. The civilian labor force participation rate dropped from the peak of 66.9 percent in Jul 2006 to 62.6 percent in Dec 2013 and 62.9 percent in May 2014. The civilian labor force participation rate was 63.7 percent on an annual basis in 1979 and 63.4 percent in Dec 1980 and Dec 1981, reaching even 62.9 percent in both Apr and May 1979. The civilian labor force participation rate jumped with the recovery to 64.8 percent on an annual basis in 1985 and 65.9 percent in Jul 1985. Structural factors cannot explain these sudden changes vividly shown visually in the final segment of Chart I-12b. Seniors would like to delay their retiring especially because of the adversities of financial repression on their savings. Labor force statistics are capturing the disillusion of potential workers with their chances in finding a job in what Lazear and Spletzer (2012JHJul22) characterize as accentuated cyclical factors. The argument that anemic population growth causes “secular stagnation” in the US (Hansen 1938, 1939, 1941) is as misplaced currently as in the late 1930s (for early dissent see Simons 1942). There is currently population growth in the ages of 16 to 24 years but not enough job creation and discouragement of job searches for all ages (http://cmpassocregulationblog.blogspot.com/2014/05/rules-discretionary-authorities-and.html). “Secular stagnation” would be a process over many years and not from one year to another. This is merely another case of theory without reality with dubious policy proposals.
Table I-4b, US, Labor Force Participation Rate, Percent of Labor Force in Population, NSA, 1979-2014
| Year | Jan | Feb | Mar | Apr | May | Oct | Nov | Dec | Annual |
| 1979 | 62.9 | 63.0 | 63.2 | 62.9 | 62.9 | 64.0 | 63.8 | 63.8 | 63.7 |
| 1980 | 63.3 | 63.2 | 63.2 | 63.2 | 63.5 | 63.9 | 63.7 | 63.4 | 63.8 |
| 1981 | 63.2 | 63.2 | 63.5 | 63.6 | 63.9 | 64.0 | 63.8 | 63.4 | 63.9 |
| 1982 | 63.0 | 63.2 | 63.4 | 63.3 | 63.9 | 64.1 | 64.1 | 63.8 | 64.0 |
| 1983 | 63.3 | 63.2 | 63.3 | 63.2 | 63.4 | 64.1 | 64.1 | 63.8 | 64.0 |
| 1984 | 63.3 | 63.4 | 63.6 | 63.7 | 64.3 | 64.6 | 64.4 | 64.3 | 64.4 |
| 1985 | 64.0 | 64.0 | 64.4 | 64.3 | 64.6 | 65.1 | 64.9 | 64.6 | 64.8 |
| 1986 | 64.2 | 64.4 | 64.6 | 64.6 | 65.0 | 65.5 | 65.4 | 65.0 | 65.3 |
| 1987 | 64.7 | 64.8 | 65.0 | 64.9 | 65.6 | 65.9 | 65.7 | 65.5 | 65.6 |
| 1988 | 65.1 | 65.2 | 65.2 | 65.3 | 65.5 | 66.1 | 66.2 | 65.9 | 65.9 |
| 1989 | 65.8 | 65.6 | 65.7 | 65.9 | 66.2 | 66.6 | 66.7 | 66.3 | 66.5 |
| 1990 | 66.0 | 66.0 | 66.2 | 66.1 | 66.5 | 66.5 | 66.3 | 66.1 | 66.5 |
| 1991 | 65.5 | 65.7 | 65.9 | 66.0 | 66.0 | 66.1 | 66.0 | 65.8 | 66.2 |
| 1992 | 65.7 | 65.8 | 66.0 | 66.0 | 66.4 | 66.2 | 66.2 | 66.1 | 66.4 |
| 1993 | 65.6 | 65.8 | 65.8 | 65.6 | 66.3 | 66.4 | 66.3 | 66.2 | 66.3 |
| 1994 | 66.0 | 66.2 | 66.1 | 66.0 | 66.5 | 66.8 | 66.7 | 66.5 | 66.6 |
| 1995 | 66.1 | 66.2 | 66.4 | 66.4 | 66.4 | 66.7 | 66.5 | 66.2 | 66.6 |
| 1996 | 65.8 | 66.1 | 66.4 | 66.2 | 66.7 | 67.1 | 67.0 | 66.7 | 66.8 |
| 1997 | 66.4 | 66.5 | 66.9 | 66.7 | 67.0 | 67.1 | 67.1 | 67.0 | 67.1 |
| 1998 | 66.6 | 66.7 | 67.0 | 66.6 | 67.0 | 67.1 | 67.1 | 67.0 | 67.1 |
| 1999 | 66.7 | 66.8 | 66.9 | 66.7 | 67.0 | 67.0 | 67.0 | 67.0 | 67.1 |
| 2000 | 66.8 | 67.0 | 67.1 | 67.0 | 67.0 | 66.9 | 66.9 | 67.0 | 67.1 |
| 2001 | 66.8 | 66.8 | 67.0 | 66.7 | 66.6 | 66.7 | 66.6 | 66.6 | 66.8 |
| 2002 | 66.2 | 66.6 | 66.6 | 66.4 | 66.5 | 66.6 | 66.3 | 66.2 | 66.6 |
| 2003 | 66.1 | 66.2 | 66.2 | 66.2 | 66.2 | 66.1 | 66.1 | 65.8 | 66.2 |
| 2004 | 65.7 | 65.7 | 65.8 | 65.7 | 65.8 | 66.0 | 66.1 | 65.8 | 66.0 |
| 2005 | 65.4 | 65.6 | 65.6 | 65.8 | 66.0 | 66.2 | 66.1 | 65.9 | 66.0 |
| 2006 | 65.5 | 65.7 | 65.8 | 65.8 | 66.0 | 66.4 | 66.4 | 66.3 | 66.2 |
| 2007 | 65.9 | 65.8 | 65.9 | 65.7 | 65.8 | 66.0 | 66.1 | 65.9 | 66.0 |
| 2008 | 65.7 | 65.5 | 65.7 | 65.7 | 66.0 | 66.1 | 65.8 | 65.7 | 66.0 |
| 2009 | 65.4 | 65.5 | 65.4 | 65.4 | 65.5 | 64.9 | 64.9 | 64.4 | 65.4 |
| 2010 | 64.6 | 64.6 | 64.8 | 64.9 | 64.8 | 64.4 | 64.4 | 64.1 | 64.7 |
| 2011 | 63.9 | 63.9 | 64.0 | 63.9 | 64.1 | 64.1 | 63.9 | 63.8 | 64.1 |
| 2012 | 63.4 | 63.6 | 63.6 | 63.4 | 63.8 | 63.8 | 63.5 | 63.4 | 63.7 |
| 2013 | 63.3 | 63.2 | 63.1 | 63.1 | 63.5 | 62.9 | 62.9 | 62.6 | 63.2 |
| 2014 | 62.5 | 62.7 | 62.9 | 62.6 | 62.9 |
Source: US Bureau of Labor Statistics http://www.bls.gov/data/
Chart I-12b, US, Labor Force Participation Rate, Percent of Labor Force in Population, NSA, 1979-2014
Source: Bureau of Labor Statistics
Broader perspective is provided by Chart I-12c of the US Bureau of Labor Statistics. The United States civilian noninstitutional population has increased along a consistent trend since 1948 that continued through earlier recessions and the global recession from IVQ2007 to IIQ2009 and the cyclical expansion after IIIQ2009.
Chart I-12c, US, Civilian Noninstitutional Population, Thousands, NSA, 1948-2014
Sources: US Bureau of Labor Statistics
The labor force of the United States in Chart I-12d has increased along a trend similar to that of the civilian noninstitutional population in Chart I-12c. There is an evident stagnation of the civilian labor force in the final segment of Chart I-12d during the current economic cycle. This stagnation is explained by cyclical factors similar to those analyzed by Lazear and Spletzer (2012JHJul22) that motivated an increasing population to drop out of the labor force instead of structural factors. Large segments of the potential labor force are not observed, constituting unobserved unemployment and of more permanent nature because those afflicted have been seriously discouraged from working by the lack of opportunities.
Chart I-12d, US, Labor Force, Thousands, NSA, 1948-2014
Sources: US Bureau of Labor Statistics
The rate of labor force participation of the US is in Chart I-12E from 1948 to 2014. There is sudden decline during the global recession after 2007 without recovery explained by cyclic factors (Lazear and Spletzer 2012JHJul22) as many potential workers stopped their job searches disillusioned that there could be an opportunity for them in sharply contracted labor markets.
Chart I-12E, US, Labor Force Participation Rate, Percent of Labor Force in Population, NSA, 1948-2014
Sources: US Bureau of Labor Statistics
IA3 Long-term and Cyclical Comparison of Employment. There is initial discussion here of long-term employment trends followed by cyclical comparison. Growth and employment creation have been mediocre in the expansion beginning in Jul IIIQ2009 from the contraction between Dec IVQ2007 and Jun IIQ2009 (http://www.nber.org/cycles.html). A series of charts from the database of the Bureau of Labor Statistics (BLS) provides significant insight. Chart I-13 provides the monthly employment level of the US from 1948 to 2014. The number of people employed has trebled. There are multiple contractions throughout the more than six decades but followed by resumption of the strong upward trend. The contraction after 2007 is deeper and followed by a flatter curve of job creation. The United States missed this opportunity of high growth in the initial phase of recovery that historically eliminated unemployment and underemployment created during the contraction. Inferior performance of the US economy and labor markets is the critical current issue of analysis and policy design. Long-term economic performance in the United States consisted of trend growth of GDP at 3 percent per year and of per capita GDP at 2 percent per year as measured for 1870 to 2010 by Robert E Lucas (2011May). The economy returned to trend growth after adverse events such as wars and recessions. The key characteristic of adversities such as recessions was much higher rates of growth in expansion periods that permitted the economy to recover output, income and employment losses that occurred during the contractions. Over the business cycle, the economy compensated the losses of contractions with higher growth in expansions to maintain trend growth of GDP of 3 percent and of GDP per capita of 2 percent. The US maintained growth at 3.0 percent on average over entire cycles with expansions at higher rates compensating for contractions. US economic growth has been at only 2.2 percent on average in the cyclical expansion in the 19 quarters from IIIQ2009 to IQ2014. Boskin (2010Sep) measures that the US economy grew at 6.2 percent in the first four quarters and 4.5 percent in the first 12 quarters after the trough in the second quarter of 1975; and at 7.7 percent in the first four quarters and 5.8 percent in the first 12 quarters after the trough in the first quarter of 1983 (Professor Michael J. Boskin, Summer of Discontent, Wall Street Journal, Sep 2, 2010 http://professional.wsj.com/article/SB10001424052748703882304575465462926649950.html). There are new calculations using the revision of US GDP and personal income data since 1929 by the Bureau of Economic Analysis (BEA) (http://bea.gov/iTable/index_nipa.cfm) and the second estimate of GDP for IQ2014 (http://www.bea.gov/newsreleases/national/gdp/2014/pdf/gdp1q14_2nd.pdf). The average of 7.7 percent in the first four quarters of major cyclical expansions is in contrast with the rate of growth in the first four quarters of the expansion from IIIQ2009 to IIQ2010 of only 2.7 percent obtained by diving GDP of $14,738.0 billion in IIQ2010 by GDP of $14,356.9 billion in IIQ2009 {[$14,738.0/$14,356.9 -1]100 = 2.7%], or accumulating the quarter on quarter growth rates (Section I and earlier http://cmpassocregulationblog.blogspot.com/2014/05/financial-volatility-mediocre-cyclical.html). The expansion from IQ1983 to IVQ1985 was at the average annual growth rate of 5.9 percent, 5.4 percent from IQ1983 to IIIQ1986, 5.2 percent from IQ1983 to IVQ1986, 5.0 percent from IQ1983 to IQ1987, 5.0 percent from IQ1983 to IIQ1987, 4.9 percent from IQ1983 to IIIQ1987 and at 7.8 percent from IQ1983 to IVQ1983 (Section I and earlier http://cmpassocregulationblog.blogspot.com/2014/05/financial-volatility-mediocre-cyclical.html). The US maintained growth at 3.0 percent on average over entire cycles with expansions at higher rates compensating for contractions. Growth at trend in the entire cycle from IVQ2007 to IQ2014 would have accumulated to 21.2 percent. GDP in IQ2014 would be $18,172.7 billion (in constant dollars of 2009) if the US had grown at trend, which is higher by $2,269.8 billion than actual $15,902.9 billion. There are about two trillion dollars of GDP less than at trend, explaining the 26.6 million unemployed or underemployed equivalent to actual unemployment of 16.2 percent of the effective labor force (Section I and earlier http://cmpassocregulationblog.blogspot.com/2014/05/financial-volatility-mediocre-cyclical.html). US GDP in IQ2014 is 12.5 percent below than at trend. US GDP grew from $14,996.1 billion in IVQ2007 in constant dollars to $15,902.9 billion in IQ2014 or 6.0 percent at the average annual equivalent rate of 0.9 percent. The US missed the opportunity to grow at higher rates during the expansion and it is difficult to catch up because growth rates in the final periods of expansions tend to decline. The US missed the opportunity for recovery of output and employment always afforded in the first four quarters of expansion from recessions. Zero interest rates and quantitative easing were not required or present in successful cyclical expansions and in secular economic growth at 3.0 percent per year and 2.0 percent per capita as measured by Lucas (2011May). There is cyclical uncommonly slow growth in the US instead of allegations of secular stagnation.
Chart I-13, US, Employment Level, Thousands, SA, 1948-2014
Source: US Bureau of Labor Statistics
The steep and consistent curve of growth of the US labor force is shown in Chart I-14. The contraction beginning in Dec 2007 flattened the path of the US civilian labor force and is now followed by a flatter curve during the current expansion.
Chart I-14, US, Civilian Labor Force, SA, 1948-2014, Thousands
Source: US Bureau of Labor Statistics
Chart I-15 for the period from 1948 to 2014. The labor force participation rate is influenced by numerous factors such as the age of the population. There is no comparable episode in the postwar economy to the sharp collapse of the labor force participation rate in Chart I-15 during the contraction and subsequent expansion after 2007. Aging can reduce the labor force participation rate as many people retire but many may have decided to work longer as their wealth and savings have been significantly reduced. There is an important effect of many people just exiting the labor force because they believe there is no job available for them.
Chart I-15, US, Civilian Labor Force Participation Rate, SA, 1948-2014, %
Source: US Bureau of Labor Statistics
The number of unemployed in the US jumped seasonally adjusted from 5.8 million in May 1979 to 12.1 million in Dec 1982, by 6.3 million, or 108.6 percent. The jump not seasonally adjusted was from 5.4 million in May 1979 to 12.5 million in Jan 1983, by 7.1 million or 131.5 percent. The number of unemployed seasonally adjusted jumped from 6.7 million in Mar 2007 to 15.4 million in Oct 2009, by 8.7 million, or 129.9 percent. The number of unemployed not seasonally adjusted jumped from 6.5 million in Apr 2007 to 16.1 million in Jan 2010, by 9.6 million or 147.7 percent. These are the two episodes with steepest increase in the level of unemployment in Chart I-16.
Chart I-16, US, Unemployed, SA, 1948-2014, Thousands
Source: US Bureau of Labor Statistics
Chart I-17 provides the rate of unemployment of the US from 1948 to 2014. The peak of the series is 10.8 percent in both Nov and Dec 1982. The second highest rates are 10.0 percent in Oct 2009 and 9.9 percent in both Nov and Dec 2009. The unadjusted rate of unemployment reached 10.6 percent in Jan 2010.
Chart I-17, US, Unemployment Rate, SA, 1948-2014
Source: US Bureau of Labor Statistics
Chart I-18 provides the number unemployed for 27 weeks and over from 1948 to 2014. The number unemployed for 27 weeks and over jumped from 510,000 in Dec 1978 to 2.885 million in Jun 1983, by 2.4 million, or 465.7 percent. The number of unemployed 27 weeks or over SA jumped from 1.132 million in May 2007 to 6.604 million in Jun 2010, by 5.472 million, or 483.4 percent.
Chart I-18, US, Unemployed for 27 Weeks or More, SA, 1948-2014, Thousands
Source: US Bureau of Labor Statistics
The employment-population ratio in Chart I-19 is an important indicator of wellbeing in labor markets, measuring the number of people with jobs. The US employment-population ratio fell from 63.5 in Dec 2006 to 58.6 in Jul 2011 and stands at 59.1 NSA in May 2014. There is no comparable decline followed by stabilization during an expansion in Chart I-19.
Chart I-19, US, Employment-Population Ratio, 1948-2014
Source: US Bureau of Labor Statistics
The number employed part-time for economic reasons in Chart I-20 increased in the recessions and declined during the expansions. In the current cycle, the number employed part-time for economic reasons increased sharply and has not returned to normal levels. Lower growth of economic activity in the expansion after IIIQ2009 failed to reduce the number desiring to work full time but finding only part-time occupations.
Chart I-20, US, Part-Time for Economic Reasons, NSA, 1955-2014, Thousands
Source: US Bureau of Labor Statistics
Table I-5 provides percentage change of real GDP in the United States in the 1930s, 1980s and 2000s. The recession in 1981-1982 is quite similar on its own to the 2007-2009 recession. In contrast, during the Great Depression in the four years of 1930 to 1933, GDP in constant dollars fell 26.4 percent cumulatively and fell 45.3 percent in current dollars (Pelaez and Pelaez, Financial Regulation after the Global Recession (2009a), 150-2, Pelaez and Pelaez, Globalization and the State, Vol. II (2009b), 205-7 and revisions in http://bea.gov/iTable/index_nipa.cfm). Data are available for the 1930s only on a yearly basis. US GDP fell 4.7 percent in the two recessions (1) from IQ1980 to IIIQ1980 and (2) from III1981 to IVQ1981 to IVQ1982 and 4.3 percent cumulatively in the recession from IVQ2007 to IIQ2009. It is instructive to compare the first three years of the expansions in the 1980s and the current expansion. GDP grew at 4.6 percent in 1983, 7.3 percent in 1984, 4.2 percent in 1985 and 3.5 percent in 1986 while GDP grew, 2.5 percent in 2010, 1.8 percent in 2011, 2.8 percent in 2012 and 1.9 percent in 2013. Actual annual equivalent GDP growth in the four quarters of 2012, and five quarters from IQ2013 to IQ2014 is 1.9 percent and 2.0 percent in the four quarters ending in IQ2014 but only 2.2 percent in the four quarters of 2013 by discounting contribution of 1.67 percentage points of inventory accumulation to growth in IIIQ2013. GDP grew at 4.2 percent in 1985 and 3.5 percent in 1986 while the forecasts of the central tendency of participants of the Federal Open Market Committee (FOMC) are in the range of 2.8 to 3.0 percent in 2014 (http://www.federalreserve.gov/newsevents/press/monetary/20140319b.htm) with less reliable forecast of 3.0 to 3.2 percent in 2015 (http://www.federalreserve.gov/newsevents/press/monetary/20140319b.htm). Growth of GDP in the expansion from IIIQ2009 to IQ2014 has been at average 2.2 percent in annual equivalent.
Table I-5, US, Percentage Change of GDP in the 1930s, 1980s and 2000s, ∆%
| Year | GDP ∆% | Year | GDP ∆% | Year | GDP ∆% |
| 1930 | -8.5 | 1980 | -0.2 | 2000 | 4.1 |
| 1931 | -6.4 | 1981 | 2.6 | 2001 | 1.0 |
| 1932 | -12.9 | 1982 | -1.9 | 2002 | 1.8 |
| 1933 | -1.3 | 1983 | 4.6 | 2003 | 2.8 |
| 1934 | 10.8 | 1984 | 7.3 | 2004 | 3.8 |
| 1935 | 8.9 | 1985 | 4.2 | 2005 | 3.4 |
| 1936 | 12.9 | 1986 | 3.5 | 2006 | 2.7 |
| 1937 | 5.1 | 1987 | 3.5 | 2007 | 1.8 |
| 1938 | -3.3 | 1988 | 4.2 | 2008 | -0.3 |
| 1930 | 8.0 | 1989 | 3.7 | 2009 | -2.8 |
| 1940 | 8.8 | 1990 | 1.9 | 2010 | 2.5 |
| 1941 | 17.7 | 1991 | -0.1 | 2011 | 1.8 |
| 1942 | 18.9 | 1992 | 3.6 | 2012 | 2.8 |
| 1943 | 17.0 | 1993 | 2.7 | 2013 | 1.9 |
Source: US Bureau of Economic Analysis http://www.bea.gov/iTable/index_nipa.cfm
Characteristics of the four cyclical contractions are provided in Table I-6 with the first column showing the number of quarters of contraction; the second column the cumulative percentage contraction; and the final column the average quarterly rate of contraction. There were two contractions from IQ1980 to IIIQ1980 and from IIIQ1981 to IVQ1982 separated by three quarters of expansion. The drop of output combining the declines in these two contractions is 4.7 percent, which is almost equal to the decline of 4.3 percent in the contraction from IVQ2007 to IIQ2009. In contrast, during the Great Depression in the four years of 1930 to 1933, GDP in constant dollars fell 26.4 percent cumulatively and fell 45.3 percent in current dollars (Pelaez and Pelaez, Financial Regulation after the Global Recession (2009a), 150-2, Pelaez and Pelaez, Globalization and the State, Vol. II (2009b), 205-7 and revisions in http://bea.gov/iTable/index_nipa.cfm). The comparison of the global recession after 2007 with the Great Depression is entirely misleading.
Table I-6, US, Number of Quarters, GDP Cumulative Percentage Contraction and Average Percentage Annual Equivalent Rate in Cyclical Contractions
| Number of Quarters | Cumulative Percentage Contraction | Average Percentage Rate | |
| IIQ1953 to IIQ1954 | 3 | -2.4 | -0.8 |
| IIIQ1957 to IIQ1958 | 3 | -3.0 | -1.0 |
| IVQ1973 to IQ1975 | 5 | -3.1 | -0.6 |
| IQ1980 to IIIQ1980 | 2 | -2.2 | -1.1 |
| IIIQ1981 to IVQ1982 | 4 | -2.5 | -0.64 |
| IVQ2007 to IIQ2009 | 6 | -4.3 | -0.72 |
Sources: Source: Bureau of Economic Analysis http://www.bea.gov/iTable/index_nipa.cfm
Table I-7 shows the mediocre average annual equivalent growth rate of 2.2 percent of the US economy in the nineteen quarters of the current cyclical expansion from IIIQ2009 to IQ2014. In sharp contrast, the average growth rate of GDP was:
- 5.7 percent in the first thirteen quarters of expansion from IQ1983 to IQ1986
- 5.4 percent in the first fifteen quarters of expansion from IQ1983 to IIIQ1986
- 5.2 percent in the first sixteen quarters of expansion from IQ1983 to IVQ1986
- 5.0 percent in the first seventeen quarters of expansion from IQ1983 to IQ1987
- 5.0 percent in the first eighteen quarters of expansion from IQ1983 to IIQ1987
- 4.9 percent in the first nineteen quarters of expansion from IQ1983 to IIIQ1987.
The line “average first four quarters in four expansions” provides the average growth rate of 7.7 percent with 7.8 percent from IIIQ1954 to IIQ1955, 9.2 percent from IIIQ1958 to IIQ1959, 6.1 percent from IIIQ1975 to IIQ1976 and 7.8 percent from IQ1983 to IVQ1983. The United States missed this opportunity of high growth in the initial phase of recovery. BEA data show the US economy in standstill with annual growth of 2.4 percent in 2010 decelerating to 1.8 percent annual growth in 2011, 2.8 percent in 2012 and 1.9 percent in 2013 (http://www.bea.gov/iTable/index_nipa.cfm) The expansion from IQ1983 to IQ1986 was at the average annual growth rate of 5.7 percent, 5.2 percent from IQ1983 to IVQ1986, 4.9 percent from IQ1983 to IIIQ1987 and at 7.8 percent from IQ1983 to IVQ1983. GDP growth in the eight quarters of 2012 and 2013 and the first quarter of 2014 accumulated to 4.3 percent that is equivalent to 1.9 percent in a year. This is obtained by dividing GDP in IQ2014 of $15,902.9 billion by GDP in IVQ2011 of $15,242.1 billion and compounding by 4/9: {[($15,902.9/$15,242.1)4/9 -1]100 = 1.9%}. The US economy grew 2.0 percent in IQ2014 relative to the same quarter a year earlier in IQ2013. Another important revelation of the revisions and enhancements is that GDP was flat in IVQ2012 and IQ2014, which is just at the borderline of contraction. US GDP fell 0.2 percent in IQ2014. The rate of growth of GDP in the third estimate of IIIQ2013 is 4.1 percent in seasonally adjusted annual rate (SAAR). Inventory accumulation contributed 1.67 percentage points to this rate of growth. The actual rate without this impulse of unsold inventories would have been 2.43 percent, or 0.6 percent in IIIQ2013, such that annual equivalent growth in 2013 is closer to 2.2 percent {[(1.003)(1.006)(1.006)(1.007)4/4-1]100 = 2.2%}, compounding the quarterly rates and converting into annual equivalent. Inventory divestment deducted 1.62 percentage points from GDP growth in IQ2014. Without this deduction of inventory divestment, GDP growth would have been 0.64 percent in IQ2014, such that the actual growth rates in the four quarters ending in IQ2014 is closer to 3.0 percent {[(1.006)(1.01)(1.007)(1.0064)]4/4 -1]100 = 3.0%}.
Table I-7, US, Number of Quarters, Cumulative Growth and Average Annual Equivalent Growth Rate in Cyclical Expansions
| Number | Cumulative Growth ∆% | Average Annual Equivalent Growth Rate | |
| IIIQ 1954 to IQ1957 | 11 | 12.8 | 4.5 |
| First Four Quarters IIIQ1954 to IIQ1955 | 4 | 7.8 | |
| IIQ1958 to IIQ1959 | 5 | 10.0 | 7.9 |
| First Four Quarters IIIQ1958 to IIQ1959 | 4 | 9.2 | |
| IIQ1975 to IVQ1976 | 8 | 8.3 | 4.1 |
| First Four Quarters IIIQ1975 to IIQ1976 | 4 | 6.1 | |
| IQ1983-IQ1986 IQ1983-IIIQ1986 IQ1983-IVQ1986 IQ1983-IQ1987 IQ1983-IIQ1987 IQ1983 to IIIQ1987 | 13 15 16 17 18 19 | 19.9 21.6 22.3 23.1 24.5 25.6 | 5.7 5.4 5.2 5.0 5.0 4.9 |
| First Four Quarters IQ1983 to IVQ1983 | 4 | 7.8 | |
| Average First Four Quarters in Four Expansions* | 7.7 | ||
| IIIQ2009 to IQ2014 | 19 | 10.8 | 2.2 |
| First Four Quarters IIIQ2009 to IIQ2010 | 2.7 |
*First Four Quarters: 7.8% IIIQ1954-IIQ1955; 9.2% IIIQ1958-IIQ1959; 6.1% IIIQ1975-IIQ1976; 7.8% IQ1983-IVQ1983
Source: Bureau of Economic Analysis http://www.bea.gov/iTable/index_nipa.cfm
A group of charts from the database of the Bureau of Labor Statistics facilitates the comparison of employment in the 1980s and 2000s. The long-term charts and tables from I-5 to I-7 in the discussion above confirm the view that the comparison of the current expansion should be with that in the 1980s because of similar dimensions. Chart I-21 provides the level of employment in the US between 1979 and 1989. Employment surged after the contraction and grew rapidly during the decade.
Chart I-21, US, Employed, Thousands, 1979-1989
Source: US Bureau of Labor Statistics
Chart I-22 provides the level of employment in the US from 2001 to 2014. There is actually not sufficient job creation in merely absorbing new entrants in the labor force because of those dropping from job searches, worsening the stock of unemployed or underemployed in involuntary part-time jobs. Recovery has been anemic compared with the shallow recession of 2001 that was followed by nearly vertical growth in jobs. The number employed in May 2014 was 146.398 million (NSA) or 0.917 million fewer people with jobs relative to the peak of 147.315 million in Jul 2007 while the civilian noninstitutional population of ages 16 years and over increased from 231.958 million in Jul 2007 to 247.622 million in Apr 2014 or by 15.664 million. The number employed fell 0.6 percent from Jul 2007 to May 2014 while the noninstitutional civilian population of ages of 16 years and over, or those available for work, increased 6.8 percent. There is actually not sufficient job creation in merely absorbing new entrants in the labor force because of those dropping from job searches, worsening the stock of unemployed or underemployed in involuntary part-time jobs.
![clip_image001[1]](file:///C:\Users\cmpelaez\AppData\Local\Temp\WindowsLiveWriter393614076\supfiles60E3F9\image32%5b1%5d.png "clip_image001[1]")
Chart I-22, US, Employed, Thousands, 2001-2014
Source: US Bureau of Labor Statistics
There was a steady upward trend in growth of the civilian labor force between 1979 and 1989 as shown in Chart I-23. There were fluctuations but strong long-term dynamism over an entire decade.
Chart I-23, US, Civilian Labor Force, Thousands, 1979-1989
Source: US Bureau of Labor Statistics
The civilian labor force in Chart I-24 grew steadily on an upward trend in the 2000s until it contracted together with the economy after 2007. There has not been recovery during the expansion but rather decline and marginal turn of the year 2011 into expansion in 2012 followed by stability and oscillation into 2013-2014. The civilian labor force consists of people who are available and willing to work and who have searched for employment recently. The labor force of the US grew 9.4 percent from 142.828 million in Jan 2001 to 156.255 million in Jul 2009 but is lower at 155.841 million in Apr 2014, all numbers not seasonally adjusted. Chart I-3 shows the flattening of the curve of expansion of the labor force and its decline in 2010 and 2011. The ratio of the labor force of 154.871 million in Jul 2007 to the noninstitutional population of 231.958 million in Jul 2007 was 66.8 percent while the ratio of the labor force of 155.841 million in Apr 2014 to the noninstitutional population of 247.622 million in May 2014 was 62.9 percent. The labor force of the US in May 2014 corresponding to 66.8 percent of participation in the population would be 165.411 million (0.668 x 247.622). The difference between the measured labor force in May 2014 of 155.841 million and the labor force in Apr 2014 with participation rate of 66.8 percent (as in Jul 2007) of 165.411 million is 9.570 million. The level of the labor force in the US has stagnated and is 9.570 million lower than what it would have been had the same participation rate been maintained. Millions of people have abandoned their search for employment because they believe there are no jobs available for them. The key issue is whether the decline in participation of the population in the labor force is the result of people giving up on finding another job.
![clip_image003[1]](file:///C:\Users\cmpelaez\AppData\Local\Temp\WindowsLiveWriter393614076\supfiles60E3F9\image36%5b1%5d.png "clip_image003[1]")
Chart I-24, US, Civilian Labor Force, Thousands, 2001-2014
Source: US Bureau of Labor Statistics
The rate of participation of the labor force in population stagnated during the stagflation and conquest of inflation in the late 1970s and early 1980s, as shown in Chart I-25. Recovery was vigorous during the expansion and lasted through the remainder of the decade.
Chart I-25, US, Civilian Labor Force Participation Rate, 1979-1989, %
Source: US Bureau of Labor Statistics
The rate of participation in the labor force declined after the recession of 2001 and stagnated until 2007, as shown in Chart I-26. The rate of participation in the labor force continued to decline both during the contraction after 2007 and the expansion after 2009 with marginal expansion at the turn of the year into 2012 followed by trend of decline and stability.
![clip_image005[1]](file:///C:\Users\cmpelaez\AppData\Local\Temp\WindowsLiveWriter393614076\supfiles60E3F9\image40%5b1%5d.png "clip_image005[1]")
Chart I-26, US, Civilian Labor Force Participation Rate, 2001-2014, %
Source: US Bureau of Labor Statistics
Chart I-27 provides the number unemployed during the 1980s. The number unemployed peaked at 12.051 million in Dec 1982 seasonally adjusted and 12.517 in Jan 1983 million not seasonally adjusted, declining to 8.358 million in Dec 1984 seasonally adjusted and 7.978 in Dec 1984 million not seasonally adjusted during the first two years of expansion from the contraction. The number unemployed then fell to 6.667 million in Dec 1989 seasonally adjusted and 6.300 million not seasonally adjusted.
Chart I-27, US, Unemployed Thousands 1979-1989
Source: US Bureau of Labor Statistics
Chart I-28 provides the number unemployed from 2001 to 2014. Using seasonally adjusted data, the number unemployed rose from 6.727 million in Oct 2006 to 15.352 million in Oct 2009, declining to 13.090 million in Dec 2011 and to 9.799 million in May 2014. Using data not seasonally adjusted, the number unemployed rose from 6.272 million in Oct 2006 to 16.147 million in Jan 2010, declining to 11.844 million in Dec 2012, increasing to 13.181 million in Jan 20013 and declining to 9.984 million in Dec 2013. The level of unemployment was 9.443 million in May 2014.
![clip_image006[1]](file:///C:\Users\cmpelaez\AppData\Local\Temp\WindowsLiveWriter393614076\supfiles60E3F9\image44.png "clip_image006[1]")
Chart I-28, US, Unemployed Thousands 2001-2014
Source: US Bureau of Labor Statistics
The rate of unemployment peaked at 10.8 percent in both Nov and Dec 1982 seasonally adjusted, as shown in Chart I-29. The rate of unemployment dropped sharply during the expansion after 1984 and continued to decline during the rest of the decade to 5.4 percent in Dec 1989. Using not seasonally adjusted data, the rate of unemployment peaked at 11.4 percent in Jan 1983, declining to 7.0 percent in Dec 1984 and 5.1 percent in Dec 1989.
Chart I-29, US, Unemployment Rate, 1979-1989, %
Source: US Bureau of Labor Statistics
The rate of unemployment in the US seasonally adjusted jumped from 4.4 percent in May 2007 to 10.0 percent in Oct 2009 and 9.9 percent in both Nov and Dec 2009, as shown in Chart I-30. The rate of unemployment fluctuated at around 9.0 percent in 2011, declining to 7.9 percent in Dec 2012 and 6.7 percent in Dec 2013. The rate of unemployed eased to 6.3 percent in May 2014.
![clip_image007[1]](file:///C:\Users\cmpelaez\AppData\Local\Temp\WindowsLiveWriter393614076\supfiles60E3F9\image48%5b1%5d.png "clip_image007[1]")
Chart I-30, US, Unemployment Rate, 2001-2014, %
Source: US Bureau of Labor Statistics
The employment population ratio seasonally adjusted fell from around 60.1 in Dec 1979 to 57.1 in both Feb and Mar 1983, as shown in Chart I-31. The employment population ratio seasonally adjusted rose back to 59.9 in Dec 1984 and reached 63.0 later in the decade in Dec 1989. Using not seasonally adjusted data, the employment population ratio dropped from 60.4 percent in Oct 1979 to 56.1 percent in Jan 1983, increasing to 59.8 in Dec 1984 and to 62.9 percent in Dec 1989.
Chart I-31, US, Employment Population Ratio, 1979-1989, %
Source: US Bureau of Labor Statistics
The US employment-population ratio seasonally adjusted has fallen from 63.4 in Dec 2006 to 58.5 in Dec 2011, 58.6 in Dec 2012 and 58.6 in Dec 2013, as shown in Chart I-32. The employment-population ratio reached 58.9 in Apr 2014. The employment population-ratio has stagnated during the expansion. Using not seasonally adjusted data, the employment population ratio fell from 63.6 percent in Jul 2006 to 57.6 percent in Jan 2011, 58.5 percent in Dec 2012 and 58.5 percent in Dec 2013. The employment population ratio eased to 59.1 in May 2014.
Chart I-32, US, Employment Population Ratio, 2001-2014, %
Source: US Bureau of Labor Statistics
The number unemployed for 27 weeks or over peaked at 2.885 million SA in Jun 1983 as shown in Chart I-33. The number unemployed for 27 weeks or over fell sharply during the expansion to 1.393 million in Dec 1984 and continued to decline throughout the 1980s to 0.635 million in Dec 1989 SA and 0.598 million NSA.
Chart I-33, US, Number Unemployed for 27 Weeks or More 1979-1989, SA, Thousands
Source: US Bureau of Labor Statistics
The number unemployed for 27 weeks or over, seasonally adjusted, increased sharply during the contraction as shown in Chart I-34 from 1.131 million in Nov 2006 to 6.770 million in Apr 2010 seasonally adjusted. The number of unemployed for 27 weeks remained at around 6 million during the expansion compared with somewhat above 1 million before the contraction, falling to 3.374 million in May 2014 seasonally adjusted and 3.366 million not seasonally adjusted.
Chart I-34, US, Number Unemployed for 27 Weeks or More, 2001-2014, SA, Thousands
Source: US Bureau of Labor Statistics
The number of persons working part-time for economic reasons because they cannot find full-time work peaked during the contraction at 6.857 million SA in Oct 1982, as shown in Chart I-35. The number of persons at work part-time for economic reasons fell sharply during the expansion to 5.797 million in Dec 1984 and continued to fall throughout the decade to 4.817 million in Dec 1989 SA and 4.709 million NSA.
Chart I-35, US, Part-Time for Economic Reasons, 1979-1989, Thousands
Source: US Bureau of Labor Statistics
The number of people working part-time because they cannot find full-time employment, not seasonally adjusted, increased sharply during the contraction from 3.787 million in Apr 2006, not seasonally adjusted, to 9.354 million in Dec 2009, as shown in Chart I-36. The number of people working part-time because of failure to find an alternative occupation stagnated at a very high level during the expansion, declining to 6.960 million not seasonally adjusted in Apr 2014.
![clip_image009[1]](file:///C:\Users\cmpelaez\AppData\Local\Temp\WindowsLiveWriter393614076\supfiles60E3F9\image68%5b1%5d.png "clip_image009[1]")
Chart I-36, US, Part-Time for Economic Reasons, 2001-2014, Thousands
Source: US Bureau of Labor Statistics
The number marginally attached to the labor force in Chart I-37 jumped from 1.252 million in Dec 2006 to 2.800 million in Jan 2011, remaining at a high level of 2.540 million in Dec 2011, 2.809 million in Jan 2012 and 2.614 million in Dec 2012. The number marginally attached to the labor force eased to 2.427 million in Dec 2013 and 2.130 million in May 2014.
![clip_image011[1]](file:///C:\Users\cmpelaez\AppData\Local\Temp\WindowsLiveWriter393614076\supfiles60E3F9\image72.png "clip_image011[1]")
Chart I-37, US, Marginally Attached to the Labor Force, 2001-2014
Source: US Bureau of Labor Statistics
IA4 Job Creation. What is striking about the data in Table I-8 is that the numbers of monthly increases in jobs in 1983 and 1984 are several times higher than in 2010 to 2013. The civilian noninstitutional population grew by 41.0 percent from 174.215 million in 1983 to 245.679 million in 2013 and labor force higher by 39.3 percent, growing from 111.550 million in 1983 to 155.389 million in 2013. Total nonfarm payroll employment seasonally adjusted (SA) increased 217,000 in May 2014 and private payroll employment rose 216,000. The average monthly number of nonfarm jobs created from May 2012 to May 2013 was 185,083 using seasonally adjusted data, while the average number of nonfarm jobs created from May 2013 to May 2014 was 198,250, or increase by 7.1 percent. The average number of private jobs created in the US from May 2012 to May 2013 was 189,917, using seasonally adjusted data, while the average from May 2013 to May 2014 was 196,833, or increase by 3.6 percent. This blog calculates the effective labor force of the US at 162.430 million in May 2013 and 163.926 million in May 2014 (Table I-4), for growth of 1.496 million at average 124,667 per month. The difference between the average increase of 196,833 new private nonfarm jobs per month in the US from May 2013 to May 2014 and the 124,667 average monthly increase in the labor force from May 2013 to May 2014 is 72,166 monthly new jobs net of absorption of new entrants in the labor force. There are 26.618 million in job stress in the US currently. Creation of 72,166 new jobs per month net of absorption of new entrants in the labor force would require 369 months to provide jobs for the unemployed and underemployed (26.618 million divided by 72,166) or 31 years (369 divided by 12). The civilian labor force of the US in May 2014 not seasonally adjusted stood at 155.841 million with 9.443 million unemployed or effectively 17.528 million unemployed in this blog’s calculation by inferring those who are not searching because they believe there is no job for them for effective labor force of 163.926 million. Reduction of one million unemployed at the current rate of job creation without adding more unemployment requires 1.2 years (1 million divided by product of 72,166 by 12, which is 865,992). Reduction of the rate of unemployment to 5 percent of the labor force would be equivalent to unemployment of only 7.792 million (0.05 times labor force of 155.841 million) for new net job creation of 1.651 million (9.443] million unemployed minus 7.792 million unemployed at rate of 5 percent) that at the current rate would take 1.9 years (1.651 million divided by 0.865992). Under the calculation in this blog, there are 17.528 million unemployed by including those who ceased searching because they believe there is no job for them and effective labor force of 163.926 million. Reduction of the rate of unemployment to 5 percent of the labor force would require creating 11.257 million jobs net of labor force growth that at the current rate would take 10.8 years (17.528 million minus 0.05(163.926 million) = 9.332 million divided by 0.865992, using LF PART 66.2% and Total UEM in Table I-4). These calculations assume that there are no more recessions, defying United States economic history with periodic contractions of economic activity when unemployment increases sharply. The number employed in May 2014 was 146.398 million (NSA) or 0.917 million fewer people with jobs relative to the peak of 147.315 million in Jul 2007 while the civilian noninstitutional population of ages 16 years and over increased from 231.958 million in Jul 2007 to 247.622 million in May 2014 or by 15.664 million. The number employed fell 0.6 percent from Jul 2007 to May 2014 while the noninstitutional civilian population of ages of 16 years and over, or those available for work, increased 6.8 percent. There is actually not sufficient job creation in merely absorbing new entrants in the labor force because of those dropping from job searches, worsening the stock of unemployed or underemployed in involuntary part-time jobs.
There is current interest in past theories of “secular stagnation.” Alvin H. Hansen (1939, 4, 7; see Hansen 1938, 1941; for an early critique see Simons 1942) argues:
“Not until the problem of full employment of our productive resources from the long-run, secular standpoint was upon us, were we compelled to give serious consideration to those factors and forces in our economy which tend to make business recoveries weak and anaemic (sic) and which tend to prolong and deepen the course of depressions. This is the essence of secular stagnation-sick recoveries which die in their infancy and depressions which feed on them-selves and leave a hard and seemingly immovable core of unemployment. Now the rate of population growth must necessarily play an important role in determining the character of the output; in other words, the com-position of the flow of final goods. Thus a rapidly growing population will demand a much larger per capita volume of new residential building construction than will a stationary population. A stationary population with its larger proportion of old people may perhaps demand more personal services; and the composition of consumer demand will have an important influence on the quantity of capital required. The demand for housing calls for large capital outlays, while the demand for personal services can be met without making large investment expenditures. It is therefore not unlikely that a shift from a rapidly growing population to a stationary or declining one may so alter the composition of the final flow of consumption goods that the ratio of capital to output as a whole will tend to decline.”
The argument that anemic population growth causes “secular stagnation” in the US (Hansen 1938, 1939, 1941) is as misplaced currently as in the late 1930s (for early dissent see Simons 1942). There is currently population growth in the ages of 16 to 24 years but not enough job creation and discouragement of job searches for all ages (http://cmpassocregulationblog.blogspot.com/2014/05/rules-discretionary-authorities-and.html). The proper explanation is not in secular stagnation but in cyclically slow growth. The US maintained growth at 3.0 percent on average over entire cycles with expansions at higher rates compensating for contractions. Growth at trend in the entire cycle from IVQ2007 to IQ2014 would have accumulated to 21.2 percent. GDP in IQ2014 would be $18,172.7 billion (in constant dollars of 2009) if the US had grown at trend, which is higher by $2,269.8 billion than actual $15,902.9 billion. There are about two trillion dollars of GDP less than at trend, explaining the 26.6 million unemployed or underemployed equivalent to actual unemployment of 16.2 percent of the effective labor force (Section I and earlier http://cmpassocregulationblog.blogspot.com/2014/05/financial-volatility-mediocre-cyclical.html). US GDP in IQ2014 is 12.5 percent below than at trend. US GDP grew from $14,996.1 billion in IVQ2007 in constant dollars to $15,902.9 billion in IQ2014 or 6.0 percent at the average annual equivalent rate of 0.9 percent. The US missed the opportunity to grow at higher rates during the expansion and it is difficult to catch up because growth rates in the final periods of expansions tend to decline. The US missed the opportunity for recovery of output and employment always afforded in the first four quarters of expansion from recessions. Zero interest rates and quantitative easing were not required or present in successful cyclical expansions and in secular economic growth at 3.0 percent per year and 2.0 percent per capita as measured by Lucas (2011May). There is cyclical uncommonly slow growth in the US instead of allegations of secular stagnation. This is merely another case of theory without reality with dubious policy proposals.
Table I-8, US, Monthly Change in Jobs, Number SA
| Month | 1981 | 1982 | 1983 | 2008 | 2009 | 2010 | Private |
| Jan | 94 | -326 | 224 | 15 | -798 | 18 | 20 |
| Feb | 68 | -5 | -75 | -86 | -701 | -50 | -38 |
| Mar | 105 | -130 | 172 | -80 | -826 | 156 | 113 |
| Apr | 73 | -280 | 276 | -214 | -684 | 251 | 192 |
| May | 10 | -45 | 277 | -182 | -354 | 516 | 94 |
| Jun | 197 | -243 | 379 | -172 | -467 | -122 | 110 |
| Jul | 112 | -342 | 418 | -210 | -327 | -61 | 120 |
| Aug | -36 | -158 | -308 | -259 | -216 | -42 | 117 |
| Sep | -87 | -181 | 1115 | -452 | -227 | -57 | 107 |
| Oct | -99 | -277 | 271 | -474 | -198 | 241 | 199 |
| Nov | -209 | -123 | 353 | -765 | -6 | 137 | 149 |
| Dec | -278 | -14 | 356 | -697 | -283 | 71 | 94 |
| 1984 | 2011 | Private | |||||
| Jan | 446 | 70 | 72 | ||||
| Feb | 481 | 168 | 223 | ||||
| Mar | 275 | 212 | 231 | ||||
| Apr | 363 | 322 | 320 | ||||
| May | 308 | 102 | 166 | ||||
| Jun | 379 | 217 | 186 | ||||
| Jul | 313 | 106 | 219 | ||||
| Aug | 242 | 122 | 125 | ||||
| Sep | 310 | 221 | 268 | ||||
| Oct | 286 | 183 | 177 | ||||
| Nov | 349 | 164 | 191 | ||||
| Dec | 128 | 196 | 222 | ||||
| 1985 | 2012 | Private | |||||
| Jan | 266 | 360 | 364 | ||||
| Feb | 124 | 226 | 228 | ||||
| Mar | 346 | 243 | 246 | ||||
| Apr | 196 | 96 | 102 | ||||
| May | 274 | 110 | 131 | ||||
| Jun | 146 | 88 | 75 | ||||
| Jul | 190 | 160 | 172 | ||||
| Aug | 193 | 150 | 136 | ||||
| Sep | 203 | 161 | 159 | ||||
| Oct | 188 | 225 | 255 | ||||
| Nov | 209 | 203 | 211 | ||||
| Dec | 167 | 214 | 215 | ||||
| 1986 | 2013 | Private | |||||
| Jan | 125 | 197 | 219 | ||||
| Feb | 107 | 280 | 263 | ||||
| Mar | 94 | 141 | 164 | ||||
| Apr | 187 | 203 | 188 | ||||
| May | 127 | 199 | 222 | ||||
| Jun | -94 | 201 | 201 | ||||
| Jul | 318 | 149 | 170 | ||||
| Aug | 114 | 202 | 180 | ||||
| Sep | 347 | 164 | 153 | ||||
| Oct | 186 | 237 | 247 | ||||
| Nov | 186 | 274 | 272 | ||||
| Dec | 205 | 84 | 86 | ||||
| 1987 | 2014 | Private | |||||
| Jan | 172 | 144 | 166 | ||||
| Feb | 232 | 222 | 201 | ||||
| Mar | 249 | 203 | 200 | ||||
| Apr | 338 | 282 | 270 | ||||
| May | 226 | 217 | 216 | ||||
| Jun | 172 | ||||||
| Jul | 347 | ||||||
| Aug | 171 | ||||||
| Sep | 228 | ||||||
| Oct | 492 | ||||||
| Nov | 232 | ||||||
| Dec | 294 |
Source: US Bureau of Labor Statistics
Charts numbered from I-38 to I-41 from the database of the Bureau of Labor Statistics provide a comparison of payroll survey data for the contractions and expansions in the 1980s and after 2007. Chart I-38 provides total nonfarm payroll jobs from 2001 to 2013. The sharp decline in total nonfarm jobs during the contraction after 2007 has been followed by initial stagnation and then inadequate growth in 2012 and 2013-2014 while population growth continued.
Chart I-38, US, Total Nonfarm Payroll Jobs SA 2001-2014
Source: US Bureau of Labor Statistics
Chart I-39 provides total nonfarm jobs SA from 1979 to 1989. Recovery is strong throughout the decade with the economy growing at trend over the entire economic cycle.
Chart I-39, US, Total Nonfarm Payroll Jobs SA 1979-1989
Source: US Bureau of Labor Statistics
Most job creation in the US is by the private sector. Chart I-40 shows the sharp destruction of private payroll jobs during the contraction after 2007. There has been growth after 2010 but insufficient to recover higher levels of employment prevailing before the contraction. At current rates, recovery of employment may spread over several years in contrast with past expansions of the business cycle in the US.
Chart I-40, US, Total Private Payroll Jobs SA 2001-2014
Source: US Bureau of Labor Statistics
In contrast, growth of private payroll jobs in the US recovered vigorously during the expansion in 1983 through 1985, as shown in Chart I-41. Rapid growth of creation of private jobs continued throughout the 1980s.
Chart I-41, US, Total Private Payroll Jobs SA 1979-1989
Source: US Bureau of Labor Statistics
Types of jobs created, and not only the pace of job creation, may be important. Aspects of growth of payroll jobs from May 2013 to May 2014, not seasonally adjusted (NSA), are in Table I-9. Total nonfarm employment increased by 2,399,000 (row A, column Change), consisting of growth of total private employment by 2,384,000 (row B, column Change) and increase by 15,000 of government employment (row C, column Change). Monthly average growth of private payroll employment has been 198,667, which is mediocre relative to 24 to 30 million in job stress, while total nonfarm employment has grown on average by only 199,917per month, which barely keeps with 124,667 new entrants per month in the labor force. These monthly rates of job creation are insufficient to meet the demands of new entrants in the labor force and thus perpetuate unemployment and underemployment. Manufacturing employment increased by 104,000, at the monthly rate of 8,667 while private service providing employment grew by 2,041,000, at the monthly rate of 170,083. An important feature in Table I-9 is that jobs in professional and business services increased by 643,000 with temporary help services increasing by 227,000. This episode of jobless recovery is characterized by part-time jobs and creation of jobs that are inferior to those that have been lost. Monetary and fiscal stimuli fail to increase consumption in a fractured job market. The segment leisure and hospitality added 392,000 jobs in 12 months. An important characteristic is that the loss of government jobs has stabilized in federal government with loss of 62,000 jobs while states added 12,000 jobs and local government added 65,000 jobs. Local government provides the bulk of government jobs, 14.459 million, while federal government provides 2.714 million and states government 5.090 million.
Table I-9, US, Employees in Nonfarm Payrolls Not Seasonally Adjusted, in Thousands
| May 2013 | May 2014 | Change | |
| A Total Nonfarm | 136,793 | 139,192 | 2,399 |
| B Total Private | 114,545 | 116,929 | 2,384 |
| B1 Goods Producing | 18,701 | 19,044 | 343 |
| B1a Manufacturing | 11,987 | 12,091 | 104 |
| B2 Private service providing | 95,844 | 97,885 | 2,041 |
| B2a Wholesale Trade | 5,741 | 5,874 | 133 |
| B2b Retail Trade | 14,925 | 15,238 | 313 |
| B2c Transportation & Warehousing | 4,477 | 4,602 | 125 |
| B2d Financial Activities | 7,869 | 7,917 | 48 |
| B2e Professional and Business Services | 18,510 | 19,153 | 643 |
| B2e1 Temporary help services | 2,623 | 2,850 | 227 |
| B2f Health Care & Social Assistance | 17,735 | 18,056 | 321 |
| B2g Leisure & Hospitality | 14,453 | 14,845 | 392 |
| C Government | 22,248 | 22,263 | 15 |
| C1 Federal | 2,776 | 2,714 | -62 |
| C2 State | 5,078 | 5,090 | 12 |
| C3 Local | 14,394 | 14,459 | 65 |
Note: A = B+C, B = B1 + B2, C=C1 + C2 + C3
Source: US Bureau of Labor Statistics
Greater detail on the types of jobs created is provided in Table I-10 with data for Apr 2014 and Mar 2014. Strong seasonal effects are shown by the significant difference between seasonally adjusted (SA) and not-seasonally-adjusted (NSA) data. The purpose of adjusting for seasonality is to isolate nonseasonal effects. The 217,000 SA total nonfarm jobs created in May 2014 relative to Apr 2014 actually correspond to increase of 920,000 jobs NSA, as shown in row A. Most of this difference in Jan 2014 is due to the necessary benchmark and seasonal adjustments in the beginning of every year. The 216,000 total private payroll jobs SA created in May 2014 relative to Apr 2014 actually correspond to increase of 959,000 jobs NSA. The analysis of NSA job creation in the prior Table I-9 does show improvement over the 12 months ending in May 2014 that is not clouded by seasonal variations but is inadequate number of jobs created. In fact, the 12-month rate of job creation without seasonal adjustment is stronger indication of marginal improvement in the US job market but that is insufficient in even making a dent in about 30 million people unemployed or underemployed. Benchmark and seasonal adjustments affect comparability of data over time.
Table I-10, US, Employees on Nonfarm Payrolls and Selected Industry Detail, Thousands, SA and NSA
| Apr 2014 SA | May 2014 SA | ∆ | Apr 2014 NSA | May 2014 NSA | ∆ | |
| A Total Nonfarm | 138,246 | 138,463 | 217 | 138,272 | 139,192 | 920 |
| B Total Private | 116,378 | 116,594 | 216 | 115,970 | 116,929 | 959 |
| B1 Goods Producing | 18,991 | 19,009 | 18 | 18,797 | 19,044 | 247 |
| B1a Constr. | 5,998 | 6,004 | 6 | 5,869 | 6,049 | 180 |
| B Mfg | 12,089 | 12,099 | 10 | 12,033 | 12,091 | 58 |
| B2 Private Service Providing | 97,387 | 97,585 | 198 | 97,173 | 97,885 | 712 |
| B2a Wholesale Trade | 5,854 | 5,864 | 10 | 5,839 | 5,874 | 35 |
| B2b Retail Trade | 15,307 | 15,319 | 12 | 15,132 | 15,238 | 106 |
| B2c Couriers & Mess. | 557 | 561 | 4 | 531 | 545 | 14 |
| B2d Health-care & Social Assistance | 17,975 | 18,030 | 55 | 17,978 | 18,056 | 78 |
| B2De Profess. & Business Services | 19,091 | 19,146 | 55 | 19,066 | 19,153 | 87 |
| B2De1 Temp Help Services | 2,845 | 2,859 | 14 | 2,786 | 2,850 | 64 |
| B2f Leisure & Hospit. | 14,550 | 14,589 | 39 | 14,462 | 14,845 | 383 |
Notes: ∆: Absolute Change; Constr.: Construction; Mess.: Messengers; Temp: Temporary; Hospit.: Hospitality. SA aggregates do not add because of seasonal adjustment.
Source: US Bureau of Labor Statistics
Chart I-42 of the Board of Governors of the Federal Reserve System shows that output of durable manufacturing accelerated in the 1980s and 1990s with slower growth in the 2000s perhaps because processes matured. Growth was robust after the major drop during the global recession but appears to vacillate in the final segment.
Chart I-42, US, Output of Durable Manufacturing, 1972-2014
Source: Board of Governors of the Federal Reserve
http://www.federalreserve.gov/releases/g17/Current/default.htm
Manufacturing jobs increased 10,000 in May 2014 relative to Apr 2014, seasonally adjusted. Manufacturing jobs not seasonally adjusted increased 58,000 from Apr 2013 to
Apr 2014 or at the average monthly rate of 4,833. There are effects of the weaker economy and international trade together with the yearly adjustment of labor statistics. Industrial production decreased 0.6 percent in Apr 2014 after increasing 0.9 percent in Mar 2014 and increasing 1.1 percent in Feb 2014, with all data seasonally adjusted. The Federal Reserve completed its annual revision of industrial production and capacity utilization on Mar 28, 2014 (http://www.federalreserve.gov/releases/g17/revisions/Current/DefaultRev.htm). The report of the Board of Governors of the Federal Reserve System states (http://www.federalreserve.gov/releases/g17/Current/default.htm):
“Industrial production decreased 0.6 percent in April 2014 after having risen about 1 percent in both February and March. In April, manufacturing output fell 0.4 percent. The index had increased substantially in February and March following a decrease in January; severe weather had restrained production early in the quarter. The output of utilities dropped 5.3 percent in April, as demand for heating returned toward normal levels. The production at mines increased 1.4 percent following a gain of 2.0 percent in March. At 102.7 percent of its 2007 average, total industrial production in April was 3.5 percent above its level of a year earlier. The capacity utilization rate for total industry decreased 0.7 percentage point in April to 78.6 percent, a rate that is 1.5 percentage points below its long-run (1972–2013) average.”
In the six months ending in Apr 2014, United States national industrial production accumulated increase of 2.0 percent at the annual equivalent rate of 4.1 percent, which is higher than growth of 3.5 percent in the 12 months ending in Apr 2014. Excluding growth of 1.1 percent in Feb 2014 (revised from 1.2 percent in the prior estimate), growth in the remaining five months from Nov to Apr 2014 accumulated to 1.0 percent or 2.2 percent annual equivalent. Industrial production fell in two of the past six months. Business equipment accumulated growth of 2.2 percent in the six months from Nov 2013 to Apr 2014 at the annual equivalent rate of 4.4 percent, which is higher than growth of 4.1 percent in the 12 months ending in Apr 2014. The Fed analyzes capacity utilization of total industry in its report (http://www.federalreserve.gov/releases/g17/Current/default.htm): “The capacity utilization rate for total industry decreased 0.7 percentage point in April to 78.6 percent, a rate that is 1.5 percentage points below its long-run (1972–2013) average.” United States industry apparently decelerated to a lower growth rate with possible acceleration in the past few months.
Manufacturing decreased 0.4 percent in Apr 2014 after increasing 0.7 percent in Mar 2014 and increasing 1.5 percent in Feb 2014 seasonally adjusted, increasing 2.5 percent not seasonally adjusted in the 12 months ending in Apr 2014. Manufacturing grew cumulatively 1.4 percent in the six months ending in Apr 2014 or at the annual equivalent rate of 2.8 percent. Excluding the increase of 1.5 percent in Feb 2014 (revised from 1.4 percent in the prior estimate), manufacturing accumulated growth of -0.1 percent from Nov 2013 to Apr 2014 or at the annual equivalent rate of -0.3 percent. Table I-2 provides a longer perspective of manufacturing in the US. There has been evident deceleration of manufacturing growth in the US from 2010 and the first three months of 2011 into more recent months as shown by 12 months rates of growth. Growth rates appeared to be increasing again closer to 5 percent in Apr-Jun 2012 but deteriorated. The rates of decline of manufacturing in 2009 are quite high with a drop of 18.2 percent in the 12 months ending in Apr 2009. Manufacturing recovered from this decline and led the recovery from the recession. Rates of growth appeared to be returning to the levels at 3 percent or higher in the annual rates before the recession but the pace of manufacturing fell steadily in the past six months with some strength at the margin. The Board of Governors of the Federal Reserve System conducted the annual revision of industrial production released on Mar 28, 2014 (http://www.federalreserve.gov/releases/g17/revisions/Current/DefaultRev.htm):
“The Federal Reserve has revised its index of industrial production (IP) and the related measures of capacity and capacity utilization. The annual revision for 2014 was more limited than in recent years because the source data required to extend the annual benchmark indexes of production into 2012 were mostly unavailable. Consequently, the IP indexes published with this revision are very little changed from previous estimates. Measured from fourth quarter to fourth quarter, total IP is now reported to have increased about 3 1/3 percent in each year from 2011 to 2013. Relative to the rates of change for total IP published earlier, the new rates are 1/2 percentage point higher in 2012 and little changed in any other year. Total IP still shows a peak-to-trough decline of about 17 percent for the most recent recession, and it still returned to its pre-recession peak in the fourth quarter of 2013.”
Manufacturing output fell 21.9 from the peak in Jun 2007 to the trough in Apr 2009 and increased 19.9 percent from the trough in Apr 2009 to Dec 2013. Manufacturing grew 22.3 percent from the trough in Apr 2009 to Apr 2014. Manufacturing output in Apr 2014 is 4.5 percent below the peak in Jun 2007.
Table I-13 provides national income by industry without capital consumption adjustment (WCCA). “Private industries” or economic activities have share of 86.7 percent in IVQ2013. Most of US national income is in the form of services. In May 2014, there were 139.192 million nonfarm jobs NSA in the US, according to estimates of the establishment survey of the Bureau of Labor Statistics (BLS) (http://www.bls.gov/news.release/empsit.nr0.htm Table B-1). Total private jobs of 116.929 million NSA in Apr 2014 accounted for 84.0 percent of total nonfarm jobs of 139.192 million, of which 12.091 million, or 10.3 percent of total private jobs and 8.7 percent of total nonfarm jobs, were in manufacturing. Private service-producing jobs were 97.885 million NSA in May 2014, or 70.3 percent of total nonfarm jobs and 83.7 percent of total private-sector jobs. Manufacturing has share of 11.0 percent in US national income in IVQ2013, as shown in Table I-13. Most income in the US originates in services. Subsidies and similar measures designed to increase manufacturing jobs will not increase economic growth and employment and may actually reduce growth by diverting resources away from currently employment-creating activities because of the drain of taxation.
Table I-13, US, National Income without Capital Consumption Adjustment by Industry, Seasonally Adjusted Annual Rates, Billions of Dollars, % of Total
| SAAR | % Total | SAAR IQ2014 | % Total | |
| National Income WCCA | 14,811.5 | 100.0 | 14,927.6 | 100.0 |
| Domestic Industries | 14,527.6 | 98.1 | 14,692.8 | 98.4 |
| Private Industries | 12,844.2 | 86.7 | 13,003.8 | 87.1 |
| Agriculture | 206.0 | 1.4 | ||
| Mining | 258.4 | 1.7 | ||
| Utilities | 208.8 | 1.4 | ||
| Construction | 650.1 | 4.4 | ||
| Manufacturing | 1635.5 | 11.0 | ||
| Durable Goods | 914.2 | 6.2 | ||
| Nondurable Goods | 721.3 | 4.9 | ||
| Wholesale Trade | 885.8 | 6.0 | ||
| Retail Trade | 1000.5 | 6.8 | ||
| Transportation & WH | 453.5 | 3.1 | ||
| Information | 519.1 | 3.5 | ||
| Finance, Insurance, RE | 2531.8 | 17.1 | ||
| Professional & Business Services | 2033.6 | 13.7 | ||
| Education, Health Care | 1451.5 | 9.8 | ||
| Arts, Entertainment | 591.4 | 4.0 | ||
| Other Services | 418.1 | 2.8 | ||
| Government | 1683.4 | 11.4 | 1689.1 | 11.3 |
| Rest of the World | 284.0 | 1.9 | 234.8 | 1.6 |
Notes: SSAR: Seasonally-Adjusted Annual Rate; WCCA: Without Capital Consumption Adjustment by Industry; WH: Warehousing; RE, includes rental and leasing: Real Estate; Art, Entertainment includes recreation, accommodation and food services; BS: business services
Source: US Bureau of Economic Analysis
http://www.bea.gov/iTable/index_nipa.cfm
The NBER dates recessions in the US from peaks to troughs as: IQ80 to IIIQ80, IIIQ81 to IV82 and IVQ07 to IIQ09 (http://www.nber.org/cycles/cyclesmain.html). Table I-12 provides total annual level nonfarm employment in the US for the 1980s and the 2000s, which is different from 12 months comparisons. Nonfarm jobs rose by 4.859 million from 1982 to 1984, or 5.4 percent, and continued rapid growth in the rest of the decade. In contrast, nonfarm jobs are down by 7.661 million in 2010 relative to 2007 and fell by 958,000 in 2010 relative to 2009 even after six quarters of GDP growth. Monetary and fiscal stimuli have failed in increasing growth to rates required for mitigating job stress. The initial growth impulse reflects a flatter growth curve in the current expansion. Nonfarm jobs declined from 137.936 million in 2007 to 136.368 million in 2013, by 1.568 million or 1.1 percent. The US noninstitutional population or in condition to work increased from 231.867 million in 2007 to 245.679 million in 2013, by 13.812 million or 6.0 percent. The ratio of nonfarm jobs in 2007 or 137.936 million in 2007 to the noninstitutional population of 231.867 was 59.5. Nonfarm jobs in 2013 corresponding to the ratio of 59.5 of nonfarm jobs/noninstitutional population would be 146.179 million (0.595x245.679). The difference between actual nonfarm jobs of 136.368 million in 2013 and nonfarm jobs of 146.179 million that are equivalent to 59.5 percent of the noninstitutional population as in 2007 is 9.811 million. The proper explanation for this loss of work opportunities is not in secular stagnation but in cyclically slow growth. The US maintained growth at 3.0 percent on average over entire cycles with expansions at higher rates compensating for contractions. Growth at trend in the entire cycle from IVQ2007 to IQ2014 would have accumulated to 21.2 percent. GDP in IQ2014 would be $18,172.7 billion (in constant dollars of 2009) if the US had grown at trend, which is higher by $2,269.8 billion than actual $15,902.9 billion. There are about two trillion dollars of GDP less than at trend, explaining the 26.6 million unemployed or underemployed equivalent to actual unemployment of 16.2 percent of the effective labor force (Section I and earlier http://cmpassocregulationblog.blogspot.com/2014/05/financial-volatility-mediocre-cyclical.html). US GDP in IQ2014 is 12.5 percent below than at trend. US GDP grew from $14,996.1 billion in IVQ2007 in constant dollars to $15,902.9 billion in IQ2014 or 6.0 percent at the average annual equivalent rate of 0.9 percent. The US missed the opportunity to grow at higher rates during the expansion and it is difficult to catch up because growth rates in the final periods of expansions tend to decline. The US missed the opportunity for recovery of output and employment always afforded in the first four quarters of expansion from recessions. Zero interest rates and quantitative easing were not required or present in successful cyclical expansions and in secular economic growth at 3.0 percent per year and 2.0 percent per capita as measured by Lucas (2011May). There is cyclical uncommonly slow growth in the US instead of allegations of secular stagnation.
Table I-12, US, Total Nonfarm Employment in Thousands
| Year | Total Nonfarm | Year | Total Nonfarm |
| 1980 | 90,533 | 2000 | 132,019 |
| 1981 | 91,297 | 2001 | 132,074 |
| 1982 | 89,689 | 2002 | 130,628 |
| 1983 | 90,295 | 2003 | 130,318 |
| 1984 | 94,548 | 2004 | 131,749 |
| 1985 | 97,532 | 2005 | 134,005 |
| 1986 | 99,500 | 2006 | 136,398 |
| 1987 | 102,116 | 2007 | 137,936 |
| 1988 | 105,378 | 2008 | 137,170 |
| 1989 | 108,051 | 2009 | 131,233 |
| 1990 | 109,527 | 2010 | 130,275 |
| 1991 | 108,427 | 2011 | 131,842 |
| 1992 | 108,802 | 2012 | 134,104 |
| 1993 | 110,935 | 2013 | 136,368 |
Source: US Bureau of Labor Statistics http://www.bls.gov/
Chart I-43 provides annual nonfarm jobs in the US not seasonally adjusted from 2000 to 2013. Cyclically slow growth in the expansion since IIIQ2009 has not been sufficient to recover nonfarm jobs. Because of population growth, there are 9.811 million fewer nonfarm jobs in the US in 2013 than in 2007.
Chart I-43, US, Annual Nonfarm Jobs, NSA, Thousands, 2000-2013
Source: US Bureau of Labor Statistics http://www.bls.gov/
Chart I-44 provides annual nonfarm jobs in the US not seasonally adjusted from 1980 to 1993. Much more rapid cyclical growth as in other expansions historically allowed steady and rapid growth of nonfarm job opportunities even with similarly dynamic population growth.
Chart I-44, US, Annual Nonfarm Jobs, NSA, Thousands, 1980-1993
Source: US Bureau of Labor Statistics http://www.bls.gov
he highest average yearly percentage of unemployed to the labor force since 1940 was 14.6 percent in 1940 followed by 9.9 percent in 1941, 8.5 percent in 1975, 9.7 percent in 1982 and 9.6 percent in 1983 (ftp://ftp.bls.gov/pub/special.requests/lf/aa2006/pdf/cpsaat1.pdf). The rate of unemployment remained at high levels in the 1930s, rising from 3.2 percent in 1929 to 22.9 percent in 1932 in one estimate and 23.6 percent in another with real wages increasing by 16.4 percent (Margo 1993, 43; see Pelaez and Pelaez, Regulation of Banks and Finance (2009b), 214-5). There are alternative estimates of 17.2 percent or 9.5 percent for 1940 with real wages increasing by 44 percent. Employment declined sharply during the 1930s. The number of hours worked remained in 1939 at 29 percent below the level of 1929 (Cole and Ohanian 1999). Private hours worked fell in 1939 to 25 percent of the level in 1929. The policy of encouraging collusion through the National Industrial Recovery Act (NIRA), to maintain high prices, together with the National Labor Relations Act (NLRA), to maintain high wages, prevented the US economy from recovering employment levels until Roosevelt abandoned these policies toward the end of the 1930s (for review of the literature analyzing the Great Depression see Pelaez and Pelaez, Regulation of Banks and Finance (2009b), 198-217).
The Bureau of Labor Statistics (BLS) makes yearly revisions of its establishment survey (Harris 2011BA):
“With the release of data for January 2011, the Bureau of Labor Statistics (BLS) introduced its annual revision of national estimates of employment, hours, and earnings from the Current Employment Statistics (CES) monthly survey of nonfarm establishments. Each year, the CES survey realigns its sample-based estimates to incorporate universe counts of employment—a process known as benchmarking. Comprehensive counts of employment, or benchmarks, are derived primarily from unemployment insurance (UI) tax reports that nearly all employers are required to file with State Workforce Agencies.”
The number of not seasonally adjusted total private jobs in the US in Dec 2010 is 108.464 million, declining to 106.079 million in Jan 2011, or by 2.385 million, because of the adjustment of a different benchmark and not actual job losses. The not seasonally adjusted number of total private jobs in Dec 1984 is 80.250 million, declining to 78.704 million in Jan 1985, or by 1.546 million for the similar adjustment. Table I-13 attempts to measure job losses and gains in the recessions and expansions of 1981-1985 and 2007-2011. The final ten rows provide job creation from May 1983 to May 1984 and from May 2010 to May 2011, that is, at equivalent stages of the recovery from two comparable strong recessions. The row “Change ∆%” for May 1983 to May 1984 shows an increase of total nonfarm jobs by 4.9 percent and of 5.9 percent for total private jobs. The row “Change ∆%” for May 2010 to May 2011 shows an increase of total nonfarm jobs by 0.7 percent and of 1.7 percent for total private jobs. The last two rows of Table 7 provide a calculation of the number of jobs that would have been created from May 2010 to May 2011 if the rate of job creation had been the same as from May 1983 to May 1984. If total nonfarm jobs had grown between May 2010 and May 2011 by 4.9 percent, as between May 1983 and May 1984, 6.409 million jobs would have been created in the past 12 months for a difference of 5.457 million more total nonfarm jobs relative to 0.952 million jobs actually created. If total private jobs had grown between May 2010 and May 2011 by 5.9 percent as between May 1983 and May 1984, 6.337 million private jobs would have been created for a difference of 4.539 million more total private jobs relative to 1.798 million jobs actually created.
Table I-13, US, Total Nonfarm and Total Private Jobs Destroyed and Subsequently Created in Two Recessions IIIQ1981-IVQ1982 and IVQ2007-IIQ2009, Thousands and Percent
| Total Nonfarm Jobs | Total Private Jobs | |
| 06/1981 # | 92,288 | 75,969 |
| 11/1982 # | 89,482 | 73,260 |
| Change # | -2,806 | -2,709 |
| Change ∆% | -3.0 | -3.6 |
| 12/1982 # | 89,383 | 73,185 |
| 05/1984 # | 94,471 | 78,049 |
| Change # | 5,088 | 4,864 |
| Change ∆% | 5.7 | 6.6 |
| 11/2007 # | 139,090 | 116,291 |
| 05/2009 # | 131,626 | 108,601 |
| Change % | -7,464 | -7,690 |
| Change ∆% | -5.4 | -6.6 |
| 12/2009 # | 130,178 | 107,338 |
| 05/2011 # | 131,753 | 108,494 |
| Change # | 1,575 | 1,156 |
| Change ∆% | 1.2 | 1.1 |
| 05/1983 # | 90,005 | 73,667 |
| 05/1984 # | 94,471 | 78,049 |
| Change # | 4,466 | 4,382 |
| Change ∆% | 4.9 | 5.9 |
| 05/2010 # | 130,801 | 107,405 |
| 05/2011 # | 131,753 | 109,203 |
| Change # | 952 | 1,798 |
| Change ∆% | 0.7 | 1.7 |
| Change # by ∆% as in 05/1984 to 05/1985 | 6,409* | 6,337** |
| Difference in Jobs that Would Have Been Created | 5,457 = | 4,539 = |
*[(130,801x1.049)-130,801] = 6,409 thousand
**[(107,405)x1.059 – 107,405] = 6,337 thousand
Source: http://www.bls.gov/data/
IB Stagnating Real Wages. The wage bill is the product of average weekly hours times the earnings per hour. Table IB-1 provides the estimates by the Bureau of Labor Statistics (BLS) of earnings per hour seasonally adjusted, increasing from $23.86/hour in Apr 2013 to $24.31/hour in Apr 2014, or by 1.9 percent. There has been disappointment about the pace of wage increases because of rising food and energy costs that inhibit consumption and thus sales and similar concern about growth of consumption that accounts for about 69.0 percent of GDP (Table I-10 at
http://cmpassocregulationblog.blogspot.com/2014/06/financial-instability-mediocre-cyclical.html). Growth of consumption by decreasing savings by means of controlling interest rates in what is called financial repression may not be lasting and sound for personal finances (See Pelaez and Pelaez, Globalization and the State, Vol. II (2008c), 81-6, Pelaez (1975), http://cmpassocregulationblog.blogspot.com/2014/06/financial-instability-mediocre-cyclical.html and earlier http://cmpassocregulationblog.blogspot.com/2014/03/financial-uncertainty-mediocre-cyclical.html
http://cmpassocregulationblog.blogspot.com/2014/02/mediocre-cyclical-united-states.html and earlier http://cmpassocregulationblog.blogspot.com/2013/12/collapse-of-united-states-dynamism-of.html http://cmpassocregulationblog.blogspot.com/2013/11/global-financial-risk-mediocre-united.html http://cmpassocregulationblog.blogspot.com/2013/09/mediocre-and-decelerating-united-states.html
http://cmpassocregulationblog.blogspot.com/2013/09/increasing-interest-rate-risk.html http://cmpassocregulationblog.blogspot.com/2013/08/risks-of-steepening-yield-curve-and.html http://cmpassocregulationblog.blogspot.com/2013/06/tapering-quantitative-easing-policy-and.html
http://cmpassocregulationblog.blogspot.com/2013/06/mediocre-united-states-economic-growth.html
http://cmpassocregulationblog.blogspot.com/2013/04/mediocre-and-decelerating-united-states.html http://cmpassocregulationblog.blogspot.com/2013/03/mediocre-gdp-growth-at-16-to-20-percent.html http://cmpassocregulationblog.blogspot.com/2012/12/mediocre-and-decelerating-united-states_24.html http://cmpassocregulationblog.blogspot.com/2012/12/mediocre-and-decelerating-united-states.html http://cmpassocregulationblog.blogspot.com/2012/09/historically-sharper-recoveries-from.html http://cmpassocregulationblog.blogspot.com/2012/09/collapse-of-united-states-dynamism-of.html http://cmpassocregulationblog.blogspot.com/2012/07/recovery-without-jobs-stagnating-real.html http://cmpassocregulationblog.blogspot.com/2012/06/mediocre-recovery-without-jobs.html http://cmpassocregulationblog.blogspot.com/2012/04/mediocre-growth-with-high-unemployment.html http://cmpassocregulationblog.blogspot.com/2012/04/mediocre-economic-growth-falling-real.html http://cmpassocregulationblog.blogspot.com/2012/03/mediocre-economic-growth-flattening.html http://cmpassocregulationblog.blogspot.com/2012/01/mediocre-economic-growth-financial.html http://cmpassocregulationblog.blogspot.com/2011/12/slow-growth-falling-real-disposable.html http://cmpassocregulationblog.blogspot.com/2011/11/us-growth-standstill-falling-real.html http://cmpassocregulationblog.blogspot.com/2011/10/slow-growth-driven-by-reducing-savings.html). Average hourly earnings seasonally adjusted increased 0.2 percent from $24.33 in Apr 2014 to $24.38 in May 2014. Average private weekly earnings increased $16.90 from $824.21 in May 2013 to $841.11 in May 2014 or 2.1 percent and moved from $839.39 in Apr 2014 to $841.11 in May 2014 or 0.2 percent. The inflation-adjusted wage bill can only be calculated for Apr, which is the most recent month for which there are estimates of the consumer price index. Earnings per hour (not-seasonally-adjusted (NSA)) rose from $23.92 in Apr 2013 to $24.38 in Apr 2014 or by 1.9 percent (http://www.bls.gov/data/; see Table IB-3 below). Data NSA are more suitable for comparison over a year. Average weekly hours NSA were 34.3 in Apr 2013 and 34.4 in Apr 2014 (http://www.bls.gov/data/; see Table IB-2 below). The wage bill increased 2.4 percent in the 12 months ending in Apr 2014:
{[(wage bill in Apr 2014)/(wage bill in Apr 2013)]-1}100 =
{[($24.38x34.4)/($23.92x34.3)]-1]}100
= {[($838.67)/($820.46)]-1}100 = 2.2%
CPI inflation was 2.0 percent in the 12 months ending in Apr 2014 (http://www.bls.gov/cpi/) for an inflation-adjusted wage-bill change of 0.2 percent :{[(1.022/1.020)-1]100 = 0.2%} (see Table IB-5 below for Apr 2014 with minor rounding difference). The wage bill for May 2014 before inflation adjustment increased 2.3 percent relative to the wage bill for May 2013:
{[(wage bill in May 2014)/(wage bill in May 2013)]-1}100 =
{[($24.28x34.4)/23.80x34.3)]-1]}100
= {[($835.23/$816.34)]-1}100 = 2.3%
Average hourly earnings increased 2.0 percent from May 2013 to May 2014 {[($24.28/$23.80) – 1]100 = 2.0%} while hours worked increased 0.3 percent {[(34.4/34.3) – 1]100 = 1.003%}. The increase of the wage bill is the product of the increase of hourly earnings of 2.0 percent and increase of hours worked of 0.3 percent {[(1.02x1.003) -1]100 = 2.3%}.
Energy and food price increases are similar to a “silent tax” that is highly regressive, harming the most those with lowest incomes. There are concerns that the wage bill would deteriorate in purchasing power because of renewed raw materials shocks in the form of increases in prices of commodities such as the 31.1 percent steady increase in the DJ-UBS Commodity Index from Jul 2, 2010 to Sep 2, 2011. The charts of four commodity price indexes by Bloomberg show steady increase since Jul 2, 2010 that was interrupted briefly only in Nov 2010 with the sovereign issues in Europe triggered by Ireland; in Mar 2011 by the earthquake and tsunami in Japan; and in the beginning of May 2011 by the decline in oil prices and sovereign risk difficulties in Europe (http://www.bloomberg.com/markets/commodities/futures/). Renewed risk aversion because of the sovereign risks in Europe had reduced the rate of increase of the DJ UBS commodity index to 10.2 percent on May 2, 2014, relative to Jul 2, 2010 (see Table VI-4) but there has been a shift in investor preferences into equities. Inflation has been rising in waves with carry trades driven by zero interest rates to commodity futures during periods of risk appetite with interruptions during risk aversion (http://cmpassocregulationblog.blogspot.com/2014/05/world-inflation-waves-squeeze-of.html). Inflation-adjusted wages fall sharply during carry trades from zero interest rates to long positions in commodity futures during periods of risk appetite.
Table IB-1, US, Earnings per Hour and Average Weekly Hours SA
| Earnings per Hour | May 2013 | Mar 2014 | Apr 2014 | May 2014 |
| Total Private | $23.89 | $24.32 | $24.33 | $24.38 |
| Goods Producing | $25.06 | $25.59 | $25.57 | $25.61 |
| Service Providing | $23.61 | $24.01 | $24.03 | $24.09 |
| Average Weekly Earnings | ||||
| Total Private | $824.21 | $839.04 | $839.39 | $841.11 |
| Goods Producing | $1,012.42 | $1,041.51 | $1,035.59 | $1,039.77 |
| Service Providing | $786.21 | $799.53 | $800.20 | $804.61 |
| Average Weekly Hours | ||||
| Total Private | 34.5 | 34.5 | 34.5 | 34.5 |
| Goods Producing | 40.4 | 40.7 | 40.5 | 40.6 |
| Service Providing | 33.3 | 33.3 | 33.3 | 33.4 |
Source: US Bureau of Labor Statistics
Average weekly hours in Table IB-2 fell from 34.9 in Dec 2007 at the beginning of the contraction to 33.8 in Jun 2009, which was the last month of the contraction. Average weekly hours rose to 34.4 in Dec 2011 and oscillated to 34.9 in Dec 2012 and 34.7 in Dec 2013. Average weekly hours of all employees eased to 34.3 in May 2014.
Table IB-2, US, Average Weekly Hours of All Employees, NSA 2006-2014
| Year | Jan | Feb | Mar | Apr | May | Jun | Jul | Aug | Sep | Oct | Nov | Dec |
| 2006 | 34.2 | 34.6 | 34.3 | 34.6 | 34.9 | 34.6 | 34.5 | 34.9 | 34.4 | 34.6 | ||
| 2007 | 34.1 | 34.1 | 34.3 | 34.7 | 34.4 | 34.7 | 34.9 | 34.7 | 35.0 | 34.5 | 34.5 | 34.9 |
| 2008 | 34.1 | 34.2 | 34.7 | 34.4 | 34.4 | 34.9 | 34.5 | 34.6 | 34.4 | 34.4 | 34.6 | 34.1 |
| 2009 | 33.8 | 34.2 | 33.9 | 33.6 | 33.7 | 33.8 | 33.8 | 34.3 | 33.7 | 33.8 | 34.2 | 33.9 |
| 2010 | 33.7 | 33.6 | 33.8 | 34.0 | 34.4 | 34.1 | 34.2 | 34.7 | 34.1 | 34.3 | 34.2 | 34.2 |
| 2011 | 34.2 | 34.0 | 34.1 | 34.2 | 34.6 | 34.4 | 34.4 | 34.4 | 34.4 | 34.8 | 34.3 | 34.4 |
| 2012 | 34.5 | 34.2 | 34.2 | 34.6 | 34.2 | 34.4 | 34.8 | 34.5 | 34.9 | 34.3 | 34.3 | 34.9 |
| 2013 | 34.0 | 34.2 | 34.3 | 34.3 | 34.3 | 34.9 | 34.3 | 34.5 | 34.9 | 34.4 | 34.4 | 34.7 |
| 2014 | 34.0 | 34.4 | 34.7 | 34.4 | 34.4 |
Source: US Bureau of Labor Statistics
Chart IB-1 provides average weekly hours monthly from Mar 2006 to May 2014. Average weekly hours remained relatively stable in the period before the contraction and fell sharply during the contraction as business could not support lower production with the same labor input. Average weekly hours rose rapidly during the expansion but have stabilized at a level below that prevailing before the contraction.
Chart IB-1, US, Average Weekly Hours of All Employees, SA 2006-2014
Source: US Bureau of Labor Statistics
Calculations of inflation-adjusted average hourly earnings using BLS data are in Table IB-3. The final column of Table IB-3 (“12-Month Real ∆%”) provides inflation-adjusted average hourly earnings of all employees in the US. Average hourly earnings rose above inflation throughout the first nine months of 2007 just before the global recession that began in the final quarter of 2007 when average hourly earnings began to lose to inflation. In contrast, average hourly earnings of all US workers have risen less than inflation in four months in 2010 and in all but the first month in 2011 and the loss accelerated at 1.8 percent in Sep 2011, declining to a real loss of 1.1 percent in Feb 2012 and 0.6 percent in Mar 2012. There was a gain of 0.5 percent in Apr 2012 in inflation-adjusted average hourly earnings but another fall of 0.6 percent in May 2012 followed by increases of 0.3 percent in Jun and 1.0 percent in Jul 2012. Real hourly earnings stagnated in the 12 months ending in Aug 2012 with increase of only 0.1 percent, and increased 0.7 percent in the 12 months ending in Sep 2012. Real hourly earnings fell 1.3 percent in Oct 2012 and gained 1.0 percent in Dec 2012 but declined 0.3 percent in Jan 2013 and stagnated at change of 0.1 percent in Feb 2013. Real hourly earnings increased 0.4 percent in the 12 months ending in Mar 2013 and 0.2 percent in Apr 2013, increasing 0.6 percent in May 2013. In Jun 2013, real hourly earnings increased 1.0 percent relative to Jun 2012. Real hourly earnings fell 0.6 percent in the 12 months ending in Jul 2013 and increased 0.7 percent in the 12 months ending in Aug 2013. Real hourly earnings increased 1.2 percent in the 12 months ending in Oct 2013 and 1.0 percent in Nov 2013. Real hourly earnings increased 0.4 percent in the 12 months ending in Dec 2013. Real hourly earnings increased 0.3 percent in the 12 months ending in Jan 2014 and 1.7 percent in the 12 months ending in Feb 2014. Real hourly earnings increased 1.2 percent in the 12 months ending in Mar 2014. Real hourly earnings fell 0.1 percent in the 12 months ending in Apr 2014. Real hourly earnings are oscillating in part because of world inflation waves caused by carry trades from zero interest rates to commodity futures (http://cmpassocregulationblog.blogspot.com/2014/05/world-inflation-waves-squeeze-of.html) and in part because of the collapse of hiring (http://cmpassocregulationblog.blogspot.com/2014/05/rules-discretionary-authorities-and.html) originating in weak economic growth (http://cmpassocregulationblog.blogspot.com/2014/06/financial-instability-mediocre-cyclical.html).
Table IB-3, US, Average Hourly Earnings Nominal and Inflation Adjusted, Dollars and % NSA
| AHE ALL | 12 Month- | ∆% 12 Month CPI | 12-Month | |
| 2007 | ||||
| Jan* | $20.69* | 4.2* | 2.1 | 2.1* |
| Feb* | $20.77* | 4.1* | 2.4 | 1.7* |
| Mar | $20.80 | 3.6 | 2.8 | 0.8 |
| Apr | $21.03 | 3.3 | 2.6 | 0.7 |
| May | $20.82 | 3.8 | 2.7 | 1.1 |
| Jun | $20.81 | 3.8 | 2.7 | 1.1 |
| Jul | $20.97 | 3.4 | 2.4 | 1.0 |
| Aug | $20.83 | 3.5 | 2.0 | 1.5 |
| Sep | $21.17 | 4.0 | 2.8 | 1.2 |
| Oct | $21.05 | 2.6 | 3.5 | -0.9 |
| Nov | $21.12 | 3.3 | 4.3 | -1.0 |
| Dec | $21.35 | 3.6 | 4.1 | -0.5 |
| 2010 | ||||
| Jan | $22.53 | 2.0 | 2.6 | -0.6 |
| Feb | $22.59 | 1.4 | 2.1 | -0.7 |
| Mar | $22.49 | 1.1 | 2.3 | -1.2 |
| Apr | $22.54 | 1.8 | 2.2 | -0.4 |
| May | $22.61 | 2.5 | 2.0 | 0.5 |
| Jun | $22.35 | 1.7 | 1.1 | 0.6 |
| Jul | $22.42 | 1.8 | 1.2 | 0.6 |
| Aug | $22.55 | 1.7 | 1.1 | 0.6 |
| Sep | $22.61 | 1.8 | 1.1 | 0.7 |
| Oct | $22.70 | 1.9 | 1.2 | 0.7 |
| Nov | $22.70 | 1.1 | 1.1 | 0.0 |
| Dec | $22.77 | 1.7 | 1.5 | 0.2 |
| 2011 | ||||
| Jan | $23.17 | 2.8 | 1.6 | 1.2 |
| Feb | $23.00 | 1.8 | 2.1 | -0.3 |
| Mar | $22.91 | 1.9 | 2.7 | -0.8 |
| Apr | $22.97 | 1.9 | 3.2 | -1.3 |
| May | $23.07 | 2.0 | 3.6 | -1.5 |
| Jun | $22.82 | 2.1 | 3.6 | -1.4 |
| Jul | $22.95 | 2.4 | 3.6 | -1.2 |
| Aug | $22.86 | 1.4 | 3.8 | -2.3 |
| Sep | $23.06 | 2.0 | 3.9 | -1.8 |
| Oct | $23.31 | 2.7 | 3.5 | -0.8 |
| Nov | $23.16 | 2.0 | 3.4 | -1.4 |
| Dec | $23.22 | 2.0 | 3.0 | -1.0 |
| 2012 | ||||
| Jan | $23.57 | 1.7 | 2.9 | -1.2 |
| Feb | $23.41 | 1.8 | 2.9 | -1.1 |
| Mar | $23.40 | 2.1 | 2.7 | -0.6 |
| Apr | $23.62 | 2.8 | 2.3 | 0.5 |
| May | $23.33 | 1.1 | 1.7 | -0.6 |
| Jun | $23.28 | 2.0 | 1.7 | 0.3 |
| Jul | $23.49 | 2.4 | 1.4 | 1.0 |
| Aug | $23.27 | 1.8 | 1.7 | 0.1 |
| Sep | $23.68 | 2.7 | 2.0 | 0.7 |
| Oct | $23.52 | 0.9 | 2.2 | -1.3 |
| Nov | $23.59 | 1.9 | 1.8 | 0.1 |
| Dec | $23.85 | 2.7 | 1.7 | 1.0 |
| 2013 | ||||
| Jan | $23.88 | 1.3 | 1.6 | -0.3 |
| Feb | $23.91 | 2.1 | 2.0 | 0.1 |
| Mar | $23.84 | 1.9 | 1.5 | 0.4 |
| Apr | $23.92 | 1.3 | 1.1 | 0.2 |
| May | $23.80 | 2.0 | 1.4 | 0.6 |
| Jun | $23.93 | 2.8 | 1.8 | 1.0 |
| Jul | $23.81 | 1.4 | 2.0 | -0.6 |
| Aug | $23.79 | 2.2 | 1.5 | 0.7 |
| Sep | $24.16 | 2.0 | 1.2 | 0.8 |
| Oct | $24.04 | 2.2 | 1.0 | 1.2 |
| Nov | $24.11 | 2.2 | 1.2 | 1.0 |
| Dec | $24.30 | 1.9 | 1.5 | 0.4 |
| 2014 | ||||
| Jan | $24.35 | 2.0 | 1.6 | 0.4 |
| Feb | $24.58 | 2.8 | 1.1 | 1.7 |
| Mar | $24.48 | 2.7 | 1.5 | 1.2 |
| Apr | $24.38 | 1.9 | 2.0 | -0.1 |
| May | $24.28 | 2.0 |
Note: AHE ALL: average hourly earnings of all employees; CPI: consumer price index; Real: adjusted by CPI inflation; NA: not available
*AHE of production and nonsupervisory employees because of unavailability of data for all employees for Jan-Feb 2006
Source: US Bureau of Labor Statistics
Average hourly earnings of all US employees in the US in constant dollars of 1982-1984 from the dataset of the US Bureau of Labor Statistics (BLS) are provided in Table IB-4. Average hourly earnings fell 0.5 percent after adjusting for inflation in the 12 months ending in Mar 2012 and gained 0.6 percent in the 12 months ending in Apr 2012 but then lost 0.6 percent in the 12 months ending in May 2012. Average hourly earnings in the US in constant dollars of 1982-1984 increased 0.3 percent in the 12 months ending in Jun 2012 and 0.9 percent in Jul 2012 followed by 0.1 percent in Aug 2012 and 0.7 percent in Sep 2012. Average hourly earnings adjusted by inflation fell 1.2 percent in the 12 months ending in Oct 2012. Average hourly earnings adjusted by inflation increased 0.1 percent in the 12 months ending in Nov 2012 and 1.0 percent in the 12 months ending in Dec 2012 but fell 0.3 percent in the 12 months ending in Jan 2013 and stagnated with gain of 0.2 percent in the 12 months ending in Feb 2013. Average hourly earnings adjusted for inflation increased 0.4 percent in the 12 months ending in Mar 2013 and increased 0.2 percent in the 12 months ending in Apr 2013. Average hourly earnings adjusted for inflation increased 0.7 percent in the 12 months ending in May 2013 and 1.1 percent in the 12 months ending in Jun 2013. Average hourly earnings of all employees adjusted for inflation fell 0.6 percent in the 12 months ending in Jul 2013 and increased 0.7 percent in the 12 months ending in Aug 2013. Average hourly earnings adjusted for inflation increased 0.9 percent in the 12 months ending in Sep 2013 and increased 1.2 percent in the 12 months ending in Oct 2013. Average hourly earnings adjusted for inflation increased 0.9 percent in the 12 months ending in Nov 2013. Average hourly earnings increased 0.4 percent in the 12 months ending in Dec 2013 and 0.4 percent in the 12 months ending in Jan 2014. Average hourly earnings adjusted for inflation increased 1.7 percent in the 12 months ending in Feb 2014 and 1.2 percent in the 12 months ending in Mar 2014. Average hourly earnings adjusted for inflation decreased 0.1 percent in the 12 months ending in Apr 2014. Table IB-4 confirms the trend of deterioration of purchasing power of average hourly earnings in 2011 and into 2012 with 12-month percentage declines in three of the first three months of 2012 (-1.1 percent in Jan, -1.1 percent in Feb and -0.5 percent in Mar). There were declines of 0.6 percent in May and 1.2 percent in Oct and increase in five (0.6 percent in Apr, 0.3 percent in Jun, 0.9 percent in Jul, 0.7 percent in Sep and 1.0 percent in Dec) and stagnation in two (0.1 percent in Aug and 0.1 percent in Nov). Average hourly earnings adjusted for inflation fell 0.3 percent in the 12 months ending in Jan 2013, virtually stagnated with gain of 0.2 percent in the 12 months ending in Feb 2013 and gained 0.4 percent in the 12 months ending Mar 2013. Real average hourly earnings increased 0.2 percent in the 12 months ending in Apr 2013 and 0.7 percent in the 12 months ending in May 2013. Average hourly earnings increased 1.1 percent in the 12 months ending in Jun 2013 and fell 0.6 percent in the 12 months ending in Jul 2013. Annual data are revealing: -0.7 percent in 2008 during carry trades into commodity futures in a global recession, 3.1 percent in 2009 with reversal of carry trades, muted change of 0.1 percent in 2010 and no change in 2012 and decline by 1.1 percent in 2011. Average hourly earnings adjusted for inflation increased 0.5 percent in 2013. Annual average hourly earnings of all employees in the United States adjusted for inflation increased 1.9 percent from 2007 to 2013 at the yearly average rate of 0.3 percent (from $10.10 in 2007 to $10.29 in 2013 in constant dollars of 1982-1984 using data in http://www.bls.gov/data/). Those who still work bring back home a paycheck that buys fewer goods than a year earlier and savings in bank deposits do not pay anything because of financial repression (http://cmpassocregulationblog.blogspot.com/2014/06/financial-instability-mediocre-cyclical.html).
Table IB-4, US, Average Hourly Earnings of All Employees NSA in Constant Dollars of 1982-1984
| Year | Jan | Feb | Mar | Apr | Oct | Nov | Dec |
| 2006 | 10.05 | 10.10 | 10.16 | 10.14 | 10.21 | ||
| 2007 | 10.22 | 10.21 | 10.13 | 10.17 | 10.07 | 10.05 | 10.16 |
| 2008 | 10.11 | 10.11 | 10.10 | 9.99 | 10.05 | 10.36 | 10.46 |
| 2009 | 10.46 | 10.50 | 10.46 | 10.38 | 10.31 | 10.38 | 10.37 |
| 2010 | 10.40 | 10.42 | 10.33 | 10.34 | 10.38 | 10.37 | 10.39 |
| 2011 | 10.52 | 10.39 | 10.25 | 10.21 | 10.29 | 10.24 | 10.29 |
| 2012 | 10.40 | 10.28 | 10.20 | 10.27 | 10.17 | 10.25 | 10.39 |
| ∆%12M | 1.1 | -1.1 | -0.5 | 0.6 | -1.2 | 0.1 | 1.0 |
| 2013 | 10.37 | 10.30 | 10.24 | 10.29 | 10.29 | 10.34 | 10.43 |
| ∆%12M | -0.3 | 0.2 | 0.4 | 0.2 | 1.2 | 0.9 | 0.4 |
| 2014 | 10.41 | 10.47 | 10.36 | 10.28 | |||
| ∆%12M | 0.4 | 1.7 | 1.2 | -0.1 |
Source: US Bureau of Labor Statistics
Chart IB-2 of the US Bureau of Labor Statistics plots average hourly earnings of all US employees in constant 1982-1984 dollars with evident decline from annual earnings of $10.34 in 2009 and $10.35 in 2010 to $10.24 in 2011 and $10.24 again in 2012 or loss of 1.1 percent (data in http://www.bls.gov/data/). Annual real hourly earnings increased 0.5 percent in 2013 relative to 2012. The economic welfare or wellbeing of United States workers deteriorated in a recovery without hiring (http://cmpassocregulationblog.blogspot.com/2014/05/rules-discretionary-authorities-and.html), stagnating/declining real wages and 26.6 million unemployed or underemployed (Section I and earlier http://cmpassocregulationblog.blogspot.com/2014/05/financial-volatility-mediocre-cyclical.html) because of mediocre economic growth (http://cmpassocregulationblog.blogspot.com/2014/06/financial-instability-mediocre-cyclical.html).
Chart IB-2, US, Average Hourly Earnings of All Employees in Constant Dollars of 1982-1984, SA 2006-2014
Source: US Bureau of Labor Statistics http://www.bls.gov/
Chart IB-3 provides 12-month percentage changes of average hourly earnings of all employees in constant dollars of 1982-1984, that is, adjusted for inflation. There was sharp contraction of inflation-adjusted average hourly earnings of US employees during parts of 2007 and 2008. Rates of change in 12 months became positive in parts of 2009 and 2010 but then became negative again in 2011 and into 2012 with temporary increase in Apr 2012 that was reversed in May with another gain in Jun and Jul 2012 followed by stagnation in Aug 2012. There was marginal gain in Sep 2012 with sharp decline in Oct 2012, stagnation in Nov 2012, increase in Dec 2012 and renewed decrease in Jan 2013 with near stagnation in Feb 2013 followed by mild increase in Mar-Apr 2013. Hourly earnings adjusted for inflation increased in Jun 2013 and fell in Jul 2013, increasing in Aug-Dec 2013 and Jan-Mar 2014. Average hourly earnings decreased in Apr 2014.
Chart IB-3, Average Hourly Earnings of All Employees NSA 12-Month Percent Change, 1982-1984 Dollars, NSA 2007-2014
Source: US Bureau of Labor Statistics http://www.bls.gov/
Average weekly earnings of all US employees in the US in constant dollars of 1982-1984 from the dataset of the US Bureau of Labor Statistics (BLS) are provided in Table IB-5. Average weekly earnings fell 3.2 percent after adjusting for inflation in the 12 months ending in Aug 2011, decreased 0.9 percent in the 12 months ending in Sep 2011 and increased 0.6 percent in the 12 months ending in Oct 2011. Average weekly earnings fell 1.0 percent in the 12 months ending in Nov 2011 and 0.4 percent in the 12 months ending in Dec 2011. Average weekly earnings declined 0.3 percent in the 12 months ending in Jan 2012 and 0.5 percent in the 12 months ending in Feb 2012. Average weekly earnings in constant dollars were virtually flat in Mar 2012 relative to Mar 2011, decreasing 0.2 percent. Average weekly earnings in constant dollars increased 1.7 percent in Apr 2012 relative to Apr 2011 but fell 1.7 percent in May 2012 relative to May 2011, increasing 0.3 percent in the 12 months ending in Jun and 2.1 percent in Jul 2012. Real weekly earnings increased 0.4 percent in the 12 months ending in Aug 2012 and 2.1 percent in the 12 months ending in Sep 2012. Real weekly earnings fell 2.7 percent in the 12 months ending in Oct 2012 and increased 0.1 percent in the 12 months ending in Nov 2012 and 2.4 percent in the 12 months ending in Dec 2012. Real weekly earnings fell 1.7 percent in the 12 months ending in Jan 2013 and virtually stagnated with gain of 0.2 percent in the 12 months ending in Feb 2013, increasing 0.7 percent in the 12 months ending in Mar 2013. Real weekly earnings fell 0.7 percent in the 12 months ending in Apr 2013 and increased 0.9 percent in the 12 months ending in May 2013. Average weekly earnings increased 2.5 percent in the 12 months ending in Jun 2013 and fell 2.0 percent in the 12 months ending in Jul 2013. Real weekly earnings increased 0.7 percent in the 12 months ending in Aug 2013, 0.8 percent in the 12 months ending in Sep 2013 and 1.5 percent in the 12 months ending in Oct 2013. Average weekly earnings increased 1.2 percent in the 12 months ending in Nov 2013 and fell 0.2 percent in the 12 months ending in Dec 2013. Average weekly earnings increased 0.4 percent in the 12 months ending in Jan 2014 and 2.3 percent in the 12 months ending in Feb 2014. Average weekly earnings increased 2.3 percent in the 12 months ending in Mar 2014 and 0.3 percent in the 12 months ending in Apr 2014. Table I-5 confirms the trend of deterioration of purchasing power of average weekly earnings in 2011 and into 2013 with oscillations according to carry trades causing world inflation waves (http://cmpassocregulationblog.blogspot.com/2014/05/world-inflation-waves-squeeze-of.html). On an annual basis, average weekly earnings in constant 1982-1984 dollars increased from $349.34 in 2007 to $354.16 in 2013, by 1.4 percent or at the average rate of 0.2 percent per year (data in http://www.bls.gov/data/). Annual average weekly earnings in constant dollars of $353.11 in 2010 were virtually unchanged at $353.00 in 2012. Those who still work bring back home a paycheck that buys fewer high-quality goods than a year earlier. The fractured US job market does not provide an opportunity for advancement as in past booms following recessions because of poor job creation with 26.6 million unemployed or underemployed (Section I and earlier http://cmpassocregulationblog.blogspot.com/2014/05/rules-discretionary-authorities-and.html) in a recovery without hiring (http://cmpassocregulationblog.blogspot.com/2014/05/rules-discretionary-authorities-and.html).
Table IB-5, US, Average Weekly Earnings of All Employees in Constant Dollars of 1982-1984, NSA 2007-2014
| Year | Jan | Feb | Mar | Apr | Nov | Dec |
| 2006 | 343.54 | 349.61 | 348.95 | 353.20 | ||
| 2007 | 348.55 | 348.04 | 347.42 | 353.07 | 346.68 | 354.76 |
| 2008 | 344.58 | 345.89 | 350.37 | 343.80 | 358.50 | 356.85 |
| 2009 | 353.62 | 358.93 | 354.45 | 348.86 | 355.07 | 351.48 |
| 2010 | 350.39 | 350.20 | 349.29 | 351.53 | 354.81 | 355.29 |
| 2011 | 359.82 | 353.35 | 349.60 | 349.29 | 351.14 | 353.95 |
| 2012 | 358.75 | 351.67 | 348.87 | 355.19 | 351.46 | 362.53 |
| ∆%12M | -0.3 | -0.5 | -0.2 | 1.7 | 0.1 | 2.4 |
| 2013 | 352.58 | 352.21 | 351.29 | 352.84 | 355.85 | 361.82 |
| ∆%12M | -1.7 | 0.2 | 0.7 | -0.7 | 1.2 | -0.2 |
| 2014 | 353.93 | 360.14 | 359.49 | 353.76 | ||
| ∆%12M | 0.4 | 2.3 | 2.3 | 0.3 |
Source: US Bureau of Labor Statistics http://www.bls.gov/
Chart IB-4 provides average weekly earnings of all employees in constant dollars of 1982-1984. The same pattern emerges of sharp decline during the contraction, followed by recovery in the expansion and continuing fall with oscillations caused by carry trades from zero interest rates into commodity futures from 2010 to 2011 and into 2012-2014.
Chart IB-4, US, Average Weekly Earnings of All Employees in Constant Dollars of 1982-1984, SA 2006-2014
Source: US Bureau of Labor Statistics http://www.bls.gov/
Chart IB-5 provides 12-month percentage changes of average weekly earnings of all employees in the US in constant dollars of 1982-1984. There is the same pattern of contraction during the global recession in 2008 and then again trend of deterioration in the recovery without hiring and inflation waves. (http://cmpassocregulationblog.blogspot.com/2014/05/world-inflation-waves-squeeze-of.html http://cmpassocregulationblog.blogspot.com/2014/04/imf-view-world-inflation-waves-squeeze.html http://cmpassocregulationblog.blogspot.com/2014/03/interest-rate-risks-world-inflation.html http://cmpassocregulationblog.blogspot.com/2014/01/world-inflation-waves-interest-rate.html http://cmpassocregulationblog.blogspot.com/2013/12/tapering-quantitative-easing-mediocre.html
http://cmpassocregulationblog.blogspot.com/2013/11/risks-of-zero-interest-rates-world.html http://cmpassocregulationblog.blogspot.com/2013/10/world-inflation-waves-regional-economic.html http://cmpassocregulationblog.blogspot.com/2013/08/duration-dumping-and-peaking-valuations.html http://cmpassocregulationblog.blogspot.com/2013/07/tapering-quantitative-easing-policy-and.html
http://cmpassocregulationblog.blogspot.com/2013/06/paring-quantitative-easing-policy-and.html http://cmpassocregulationblog.blogspot.com/2013/05/word-inflation-waves-squeeze-of.html http://cmpassocregulationblog.blogspot.com/2013/04/world-inflation-waves-squeeze-of.html http://cmpassocregulationblog.blogspot.com/2013/04/recovery-without-hiring-ten-million.html http://cmpassocregulationblog.blogspot.com/2013/04/mediocre-and-decelerating-united-states.html http://cmpassocregulationblog.blogspot.com/2013/02/world-inflation-waves-united-states.html http://cmpassocregulationblog.blogspot.com/2012/12/recovery-without-hiring-forecast-growth.html http://cmpassocregulationblog.blogspot.com/2012/11/united-states-unsustainable-fiscal.html http://cmpassocregulationblog.blogspot.com/2012/09/recovery-without-hiring-world-inflation.html http://cmpassocregulationblog.blogspot.com/2012_09_01_archive.html http://cmpassocregulationblog.blogspot.com/2012/07/world-inflation-waves-financial.html http://cmpassocregulationblog.blogspot.com/2012/06/destruction-of-three-trillion-dollars.html http://cmpassocregulationblog.blogspot.com/2012/05/world-inflation-waves-monetary-policy.html http://cmpassocregulationblog.blogspot.com/2012/06/recovery-without-hiring-continuance-of.html http://cmpassocregulationblog.blogspot.com/2012/04/fractured-labor-market-with-hiring.html http://cmpassocregulationblog.blogspot.com/2012/03/global-financial-and-economic-risk.html http://cmpassocregulationblog.blogspot.com/2012/02/world-inflation-waves-united-states.html http://cmpassocregulationblog.blogspot.com/2012/01/world-inflation-waves-united-states.html http://cmpassocregulationblog.blogspot.com/2012/01/recovery-without-hiring-united-states.html
http://cmpassocregulationblog.blogspot.com/2012/09/recovery-without-hiring-world-inflation.html http://cmpassocregulationblog.blogspot.com/2012_09_01_archive.html http://cmpassocregulationblog.blogspot.com/2012/07/world-inflation-waves-financial.html http://cmpassocregulationblog.blogspot.com/2012/05/world-inflation-waves-monetary-policy.html http://cmpassocregulationblog.blogspot.com/2012/06/recovery-without-hiring-continuance-of.html http://cmpassocregulationblog.blogspot.com/2012/04/fractured-labor-market-with-hiring.html http://cmpassocregulationblog.blogspot.com/2012/03/global-financial-and-economic-risk.html http://cmpassocregulationblog.blogspot.com/2012/02/world-inflation-waves-united-states.html http://cmpassocregulationblog.blogspot.com/2012/01/world-inflation-waves-united-states.html http://cmpassocregulationblog.blogspot.com/2012/01/recovery-without-hiring-united-states.html).
Chart IB-5, US, Average Weekly Earnings of All Employees NSA in Constant Dollars of 1982-1984 12-Month Percent Change, NSA 2007-2014
Source: US Bureau of Labor Statistics http://www.bls.gov/
II Rules, Discretionary Authorities and Slow Productivity Growth. The Bureau of Labor Statistics (BLS) of the Department of Labor provides the quarterly report on productivity and costs. The operational definition of productivity used by the BLS is (http://www.bls.gov/news.release/pdf/prod2.pdf 1): “Labor productivity, or output per hour, is calculated by dividing an index of real output by an index of hours worked of all persons, including employees, proprietors, and unpaid family workers.” The BLS has revised the estimates for productivity and unit costs. Table II-1 provides the new estimate for IQ2014 and revised data for nonfarm business sector productivity and unit labor costs for IVQ2013 and IIIQ2013 in seasonally adjusted annual equivalent (SAAE) rate and the percentage change from the same quarter a year earlier. Reflecting decreases in output of 1.1 percent and increase of 2.2 percent in hours worked, nonfarm business sector labor productivity decreased at a SAAE rate of 3.2 percent in IQ2014, as shown in column 2 “IQ2014 SAEE.” The increase of labor productivity from IQ2013 to IQ2014 was 1.0 percent, reflecting increases in output of 2.8 percent and of hours worked of 1.7 percent, as shown in column 3 “IQ2014 YoY.” Hours worked decreased from 1.9 percent in IIIQ2013 in SAAE to 1.4 percent in IVQ2013 and increased to 2.2 percent in IQ2014 while output growth decreased from 5.4 percent in IIIQ2013 to 3.8 percent in IVQ2013 and minus 1.1 percent in IQ2014. The BLS defines unit labor costs as (http://www.bls.gov/news.release/pdf/prod2.pdf 1): “BLS defines unit labor costs as the ratio of hourly compensation to labor productivity; increases in hourly compensation tend to increase unit labor costs and increases in output per hour tend to reduce them.” Unit labor costs increased at the SAAE rate of 5.7 percent in IQ2014 and increased 1.2 percent in IQ2014 relative to IQ2013. Hourly compensation increased at the SAAE rate of 2.3 percent in IQ2014, which deflating by the estimated consumer price increase SAAE rate in IQ2014 results in increase of real hourly compensation at 0.4 percent. Real hourly compensation increased 0.9 percent in IQ2014 relative to IQ2013.
Table II-1, US, Nonfarm Business Sector Productivity and Costs %
| IQ | IQ | IVQ 2013 SAAE | IVQ 2013 YoY | IIIQ 2013 SSAE | IIIQ 2013 YOY | |
| Productivity | -3.2 | 1.0 | 2.3 | 1.4 | 3.5 | 0.5 |
| Output | -1.1 | 2.8 | 3.8 | 3.0 | 5.4 | 2.3 |
| Hours | 2.2 | 1.7 | 1.4 | 1.6 | 1.9 | 1.8 |
| Hourly | 2.3 | 2.3 | 1.7 | 0.3 | 1.3 | 2.4 |
| Real Hourly Comp. | 0.4 | 0.9 | 0.5 | -0.9 | -0.7 | 0.8 |
| Unit Labor Costs | 5.7 | 1.2 | -0.6 | -1.1 | -2.1 | 1.9 |
| Unit Nonlabor Payments | -4.4 | 1.7 | 4.1 | 4.6 | 8.5 | 0.3 |
| Implicit Price Deflator | 1.2 | 1.4 | 1.4 | 1.3 | 2.4 | 1.2 |
Notes: SAAE: seasonally adjusted annual equivalent; Comp.: compensation; YoY: Quarter on Same Quarter Year Earlier
Source: US Bureau of Labor Statistics
The analysis by Kydland (http://www.nobelprize.org/nobel_prizes/economic-sciences/laureates/2004/kydland-bio.html) and Prescott (http://www.nobelprize.org/nobel_prizes/economic-sciences/laureates/2004/prescott-bio.html) (1977, 447-80, equation 5) uses the “expectation augmented” Phillips curve with the natural rate of unemployment of Friedman (1968) and Phelps (1968), which in the notation of Barro and Gordon (1983, 592, equation 1) is:
Ut = Unt – α(πt – πe) α > 0 (1)
Where Ut is the rate of unemployment at current time t, Unt is the natural rate of unemployment, πt is the current rate of inflation and πe is the expected rate of inflation by economic agents based on current information. Equation (1) expresses unemployment net of the natural rate of unemployment as a decreasing function of the gap between actual and expected rates of inflation. The system is completed by a social objective function, W, depending on inflation, π, and unemployment, U:
W = W(πt, Ut) (2)
The policymaker maximizes the preferences of the public, (2), subject to the constraint of the tradeoff of inflation and unemployment, (1). The total differential of W set equal to zero provides an indifference map in the Cartesian plane with ordered pairs (πt, Ut - Un) such that the consistent equilibrium is found at the tangency of an indifference curve and the Phillips curve in (1). The indifference curves are concave to the origin. The consistent policy is not optimal. Policymakers without discretionary powers following a rule of price stability would attain equilibrium with unemployment not higher than with the consistent policy. The optimal outcome is obtained by the rule of price stability, or zero inflation, and no more unemployment than under the consistent policy with nonzero inflation and the same unemployment. Taylor (1998LB) attributes the sustained boom of the US economy after the stagflation of the 1970s to following a monetary policy rule instead of discretion (see Taylor 1993, 1999). It is not uncommon for effects of regulation differing from those intended by policy. Professors Edward C. Prescott and Lee E. Ohanian (2014Feb), writing on “US productivity growth has taken a dive,” on Feb 3, 2014, published in the Wall Street Journal (http://online.wsj.com/news/articles/SB10001424052702303942404579362462611843696?KEYWORDS=Prescott), argue that impressive productivity growth over the long-term constructed US prosperity and wellbeing. Prescott and Ohanian (2014Feb) measure US productivity growth at 2.5 percent per year since 1948. Average US productivity growth has been only 1.1 percent on average since 2011. Prescott and Ohanian (2014Feb) argue that living standards in the US increased at 28 percent in a decade but with current slow growth of productivity will only increase 12 percent by 2024. There may be collateral effects on productivity growth from policy design similar to those in Kydland and Prescott (1977). The Bureau of Labor Statistics important report on productivity and costs released on Jun 4, 2014 (http://www.bls.gov/lpc/) supports the argument of decline of productivity growth in the US analyzed by Prescott and Ohanian (2014Feb). Table II-2 provides the annual percentage changes of productivity, real hourly compensation and unit labor costs for the entire economic cycle from 2007 to 2013. The data confirm the argument of Prescott and Ohanian (2014Feb): productivity increased cumulatively 2.5 percent from 2011 to 2013 at the average annual rate of 0.8 percent. The situation is direr by excluding growth of 1.5 percent in 2012, which leaves an average of 0.5 percent for 2011 and 2013. Average productivity growth for the entire economic cycle from 2007 to 2013 is only 1.6 percent. The argument by Prescott and Ohanian (2014Feb) is proper in choosing the tail of the business cycle because the increase in productivity in 2009 of 3.1 percent and 3.3 percent in 2013 consisted on reducing labor hours.
Table II-2, US, Revised Nonfarm Business Sector Productivity and Costs Annual Average, ∆% Annual Average
| 2013 ∆% | 2012 ∆% | 2011 ∆% | 2010 ∆% | 2009 ∆% | 2008 ∆% | 2007 ∆% | |
| Productivity | 0.5 | 1.5 | 0.5 | 3.3 | 3.1 | 0.8 | 1.6 |
| Real Hourly Compensation | 0.1 | 0.5 | -0.7 | 0.4 | 1.5 | -1.1 | 1.4 |
| Unit Labor Costs | 1.1 | 1.2 | 2.0 | -1.2 | -2.0 | 2.0 | 2.6 |
Source: US Bureau of Labor Statistics
Productivity jumped in the recovery after the recession from Mar IQ2001 to Nov IVQ2001 (http://www.nber.org/cycles.html). Table II-3 provides quarter on quarter and annual percentage changes in nonfarm business output per hour, or productivity, from 1999 to 2013. The annual average jumped from 2.7 percent in 2001 to 4.3 percent in 2002. Nonfarm business productivity increased at the SAAE rate of 9.5 percent in the first quarter after the recession in IQ2002. Productivity increases decline later in the expansion period. Productivity increases were mediocre during the recession from Dec IVQ2007 to Jun IIIQ2009 (http://www.nber.org/cycles.html) and increased during the first phase of expansion from IIQ2009 to IQ2010, trended lower and collapsed in 2011 and 2012 with sporadic jumps and declines. Productivity increased at 2.3 percent in IVQ2013 and contracted at 3.2 percent in IQ2014.
Table II-3, US, Nonfarm Business Output per Hour, Percent Change from Prior Quarter at Annual Rate, 1999-2014
| Year | Qtr1 | Qtr2 | Qtr3 | Qtr4 | Annual |
| 1999 | 4.5 | 0.8 | 3.5 | 6.8 | 3.5 |
| 2000 | -1.4 | 8.6 | 0.1 | 3.9 | 3.3 |
| 2001 | -1.2 | 6.8 | 2.3 | 4.8 | 2.7 |
| 2002 | 9.5 | 0.3 | 3.1 | -0.7 | 4.3 |
| 2003 | 4.0 | 5.7 | 9.0 | 3.7 | 3.7 |
| 2004 | 0.0 | 4.2 | 1.2 | 1.2 | 3.1 |
| 2005 | 4.6 | -0.3 | 2.9 | 0.1 | 2.1 |
| 2006 | 2.6 | -0.3 | -1.8 | 3.2 | 0.9 |
| 2007 | 0.4 | 2.7 | 4.6 | 1.8 | 1.6 |
| 2008 | -3.9 | 4.0 | 0.9 | -2.7 | 0.8 |
| 2009 | 3.2 | 8.0 | 5.9 | 4.8 | 3.1 |
| 2010 | 2.0 | 1.2 | 2.4 | 1.9 | 3.3 |
| 2011 | -2.7 | 1.6 | -0.3 | 3.2 | 0.5 |
| 2012 | 1.7 | 1.1 | 2.1 | -1.5 | 1.5 |
| 2013 | -1.8 | 1.8 | 3.5 | 2.3 | 0.5 |
| 2014 | -3.2 |
Source: US Bureau of Labor Statistics http://www.bls.gov/lpc/
Chart II-1 of the Bureau of Labor Statistics (BLS) provides SAAE rates of nonfarm business productivity from 1999 to 2014. There is a clear pattern in both episodes of economic cycles in 2001 and 2007 of rapid expansion of productivity in the transition from contraction to expansion followed by more subdued productivity expansion. Part of the explanation is the reduction in labor utilization resulting from adjustment of business to the sudden shock of collapse of revenue. Productivity rose briefly in the expansion after 2009 but then collapsed and moved to negative change with some positive changes recently at lower rates. Contractions in the cycle from 2007 to 2014 have been more frequent and sharper.
Chart II-1, US, Nonfarm Business Output per Hour, Percent Change from Prior Quarter at Annual Rate, 1999-2014
Source: US Bureau of Labor Statistics http://www.bls.gov/lpc/
Percentage changes from prior quarter at SAAE rates and annual average percentage changes of nonfarm business unit labor costs are provided in Table II-4. Unit labor costs fell during the contractions with continuing negative percentage changes in the early phases of the recovery. Weak labor markets partly explain the decline in unit labor costs. As the economy moves toward full employment, labor markets tighten with increase in unit labor costs. The expansion beginning in IIIQ2009 has been characterized by high unemployment and underemployment. Table II-4 shows continuing subdued increases in unit labor costs in 2011 but with increase of 7.4 percent in IQ2012 followed by increase of 0.7 percent in IIQ2012, decline of 1.8 percent in IIIQ2012 and increase of 11.8 percent in IVQ2012. Unit labor costs decreased at 3.5 percent in IQ2013 and increased at 2.0 percent in IIQ2013. Unit labor costs decreased at 2.1 percent in IIIQ2013 and at 0.6 percent in IVQ2013. Unit labor costs increased at 5.7 percent in IQ2014.
Table II-4, US, Nonfarm Business Unit Labor Costs, Percent Change from Prior Quarter at Annual Rate 1999-2014
| Year | Qtr1 | Qtr2 | Qtr3 | Qtr4 | Annual |
| 1999 | 2.0 | 0.1 | -0.1 | 1.7 | 0.7 |
| 2000 | 17.5 | -6.8 | 8.2 | -1.6 | 4.0 |
| 2001 | 11.4 | -5.4 | -1.7 | -1.3 | 1.6 |
| 2002 | -6.7 | 3.3 | -1.1 | 1.8 | -1.9 |
| 2003 | -1.4 | 1.5 | -2.7 | 1.7 | 0.1 |
| 2004 | -0.6 | 3.7 | 5.8 | 0.6 | 1.4 |
| 2005 | -1.5 | 2.5 | 2.1 | 2.4 | 1.5 |
| 2006 | 6.0 | 0.4 | 2.3 | 4.0 | 3.0 |
| 2007 | 9.8 | -2.7 | -3.2 | 2.6 | 2.6 |
| 2008 | 8.2 | -3.6 | 2.5 | 7.3 | 2.0 |
| 2009 | -12.3 | 1.9 | -2.9 | -2.2 | -2.0 |
| 2010 | -4.4 | 3.5 | -0.1 | -0.1 | -1.2 |
| 2011 | 10.2 | -2.9 | 3.0 | -7.3 | 2.0 |
| 2012 | 7.4 | 0.7 | -1.8 | 11.8 | 1.2 |
| 2013 | -3.5 | 2.0 | -2.1 | -0.6 | 1.1 |
| 2014 | 5.7 |
Source: US Bureau of Labor Statistics http://www.bls.gov/lpc/
Chart II-2 provides percentage change from prior quarter at annual rate of nonfarm business real hourly compensation from 1999 to 2013. There are significant fluctuations in quarterly percentage changes oscillating between positive and negative. There is no clear pattern in the two contractions in the 2000s.
Chart II-2, US, Nonfarm Business Unit Labor Costs, Percent Change from Prior Quarter at Annual Rate 1999-2014
Source: US Bureau of Labor Statistics http://www.bls.gov/lpc/
Table II-5 provides percentage change from prior quarter at annual rates for nonfarm business real hourly worker compensation. The expansion after the contraction of 2001 was followed by strong recovery of real hourly compensation. Real hourly compensation increased at the rate of 2.9 percent in IQ2011 but fell at annual rates of 6.1 percent in IIQ2011 and 5.7 percent in IVQ2011. Real hourly compensation increased at 6.9 percent in IQ2012 and at 0.4 percent in IIQ2012, declining at 1.4 percent in IIIQ2012 and increasing at 7.5 percent in IVQ2012. Real hourly compensation fell at 0.7 percent in 2011 and increased at 0.5 percent in 2012. Real hourly compensation fell at 6.4 percent in IQ2013 and increased at 3.3 percent in IIQ2013, falling at 0.7 percent in IIIQ2013. Real hourly compensation increased at 0.5 percent in IVQ2013 and at 0.4 percent in IQ2014. The annual rate of increase of real hourly compensation for 2013 is 0.1 percent.
Table II-5, Nonfarm Business Real Hourly Compensation, Percent Change from Prior Quarter at Annual Rate 1999-2014
| Year | Qtr1 | Qtr2 | Qtr3 | Qtr4 | Annual |
| 1999 | 5.0 | -2.0 | 0.3 | 5.5 | 2.0 |
| 2000 | 11.5 | -1.8 | 4.4 | -0.5 | 3.9 |
| 2001 | 6.0 | -1.8 | -0.7 | 4.0 | 1.5 |
| 2002 | 0.7 | 0.4 | -0.2 | -1.4 | 0.7 |
| 2003 | -1.5 | 8.0 | 2.9 | 3.9 | 1.5 |
| 2004 | -3.9 | 4.8 | 4.2 | -2.5 | 1.8 |
| 2005 | 1.2 | -0.6 | -1.1 | -1.2 | 0.3 |
| 2006 | 6.4 | -3.3 | -3.4 | 9.2 | 0.6 |
| 2007 | 6.0 | -4.5 | -1.2 | -0.5 | 1.4 |
| 2008 | -0.5 | -4.7 | -2.7 | 14.6 | -1.1 |
| 2009 | -7.1 | 7.9 | -0.6 | -0.8 | 1.5 |
| 2010 | -3.0 | 4.7 | 1.1 | -1.2 | 0.4 |
| 2011 | 2.9 | -6.1 | 0.0 | -5.7 | -0.7 |
| 2012 | 6.9 | 0.4 | -1.4 | 7.5 | 0.5 |
| 2013 | -6.4 | 3.3 | -0.7 | 0.5 | 0.1 |
| 2014 | 0.4 |
Source: US Bureau of Labor Statistics http://www.bls.gov/lpc/
Chart II-3 provides percentage change from prior quarter at annual rate of nonfarm business real hourly compensation. There have been multiple negative percentage quarterly changes in the current cycle since IVQ2007.
Chart II-3, US, Nonfarm Business Real Hourly Compensation, Percent Change from Prior Quarter at Annual Rate 1999-2014
Source: US Bureau of Labor Statistics http://www.bls.gov/lpc/
Chart II-4 provides percentage change of nonfarm business output per hour in a quarter relative to the same quarter a year earlier. As in most series of real output, productivity increased sharply in 2010 but the momentum was lost after 2011 as with the rest of the real economy.
Chart II-4, US, Nonfarm Business Output per Hour, Percent Change from Same Quarter a Year Earlier 1999-2014
Source: US Bureau of Labor Statistics http://www.bls.gov/lpc/
Chart II-5 provides percentage changes of nonfarm business unit labor costs relative to the same quarter a year earlier. Softening of labor markets caused relatively high yearly percentage changes in the recession of 2001 repeated in the recession in 2009. Recovery was strong in 2010 but then weakened.
Chart II-5, US, Nonfarm Business Unit Labor Costs, Percent Change from Same Quarter a Year Earlier 1999-2014
Source: US Bureau of Labor Statistics http://www.bls.gov/lpc/
Chart II-6 provides percentage changes in a quarter relative to the same quarter a year earlier for nonfarm business real hourly compensation. Labor compensation eroded sharply during the recession with brief recovery in 2010 and another fall until recently.
Chart II-6, US, Nonfarm Business Real Hourly Compensation, Percent Change from Same Quarter a Year Earlier 1999-2014
Source: US Bureau of Labor Statistics http://www.bls.gov/lpc/
In the analysis of Hansen (1939, 3) of secular stagnation, economic progress consists of growth of real income per person driven by growth of productivity. The “constituent elements” of economic progress are “(a) inventions, (b) the discovery and development of new territory and new resources, and (c) the growth of population” (Hansen 1939, 3). Secular stagnation originates in decline of population growth and discouragement of inventions. According to Hansen (1939, 2), US population grew by 16 million in the 1920s but grew by one half or about 8 million in the 1930s with forecasts at the time of Hansen’s writing in 1938 of growth of around 5.3 million in the 1940s. Hansen (1939, 2) characterized demography in the US as “a drastic decline in the rate of population growth.” Hansen’s plea was to adapt economic policy to stagnation of population in ensuring full employment. In the analysis of Hansen (1939, 8), population caused half of the growth of US GDP per year. Growth of output per person in the US and Europe was caused by “changes in techniques and to the exploitation of new natural resources.” In this analysis, population caused 60 percent of the growth of capital formation in the US. Declining population growth would reduce growth of capital formation. Residential construction provided an important share of growth of capital formation. Hansen (1939, 12) argues that market power of imperfect competition discourages innovation with prolonged use of obsolete capital equipment. Trade unions would oppose labor-savings innovations. The combination of stagnating and aging population with reduced innovation caused secular stagnation. Hansen (1939, 12) concludes that there is role for public investments to compensate for lack of dynamism of private investment but with tough tax/debt issues.
The current application of Hansen’s (1938, 1939, 1941) proposition argues that secular stagnation occurs because full employment equilibrium can be attained only with negative real interest rates between minus 2 and minus 3 percent. Professor Lawrence H. Summers (2013Nov8) finds that “a set of older ideas that went under the phrase secular stagnation are not profoundly important in understanding Japan’s experience in the 1990s and may not be without relevance to America’s experience today” (emphasis added). Summers (2013Nov8) argues there could be an explanation in “that the short-term real interest rate that was consistent with full employment had fallen to -2% or -3% sometime in the middle of the last decade. Then, even with artificial stimulus to demand coming from all this financial imprudence, you wouldn’t see any excess demand. And even with a relative resumption of normal credit conditions, you’d have a lot of difficulty getting back to full employment.” The US economy could be in a situation where negative real rates of interest with fed funds rates close to zero as determined by the Federal Open Market Committee (FOMC) do not move the economy to full employment or full utilization of productive resources. Summers (2013Oct8) finds need of new thinking on “how we manage an economy in which the zero nominal interest rates is a chronic and systemic inhibitor of economy activity holding our economies back to their potential.”
Former US Treasury Secretary Robert Rubin (2014Jan8) finds three major risks in prolonged unconventional monetary policy of zero interest rates and quantitative easing: (1) incentive of delaying action by political leaders; (2) “financial moral hazard” in inducing excessive exposures pursuing higher yields of risker credit classes; and (3) major risks in exiting unconventional policy. Rubin (2014Jan8) proposes reduction of deficits by structural reforms that could promote recovery by improving confidence of business attained with sound fiscal discipline.
Professor John B. Taylor (2014Jan01, 2014Jan3) provides clear thought on the lack of relevance of Hansen’s contention of secular stagnation to current economic conditions. The application of secular stagnation argues that the economy of the US has attained full-employment equilibrium since around 2000 only with negative real rates of interest of minus 2 to minus 3 percent. At low levels of inflation, the so-called full-employment equilibrium of negative interest rates of minus 2 to minus 3 percent cannot be attained and the economy stagnates. Taylor (2014Jan01) analyzes multiple contradictions with current reality in this application of the theory of secular stagnation:
- Secular stagnation would predict idle capacity, in particular in residential investment when fed fund rates were fixed at 1 percent from Jun 2003 to Jun 2004. Taylor (2014Jan01) finds unemployment at 4.4 percent with house prices jumping 7 percent from 2002 to 2003 and 14 percent from 2004 to 2005 before dropping from 2006 to 2007. GDP prices doubled from 1.7 percent to 3.4 percent when interest rates were low from 2003 to 2005.
- Taylor (2014Jan01, 2014Jan3) finds another contradiction in the application of secular stagnation based on low interest rates because of savings glut and lack of investment opportunities. Taylor (2009) shows that there was no savings glut. The savings rate of the US in the past decade is significantly lower than in the 1980s.
- Taylor (2014Jan01, 2014Jan3) finds another contradiction in the low ratio of investment to GDP currently and reduced investment and hiring by US business firms.
- Taylor (2014Jan01, 2014Jan3) argues that the financial crisis and global recession were caused by weak implementation of existing regulation and departure from rules-based policies.
- Taylor (2014Jan01, 2014Jan3) argues that the recovery from the global recession was constrained by a change in the regime of regulation and fiscal/monetary policies.
The analysis by Kydland (http://www.nobelprize.org/nobel_prizes/economic-sciences/laureates/2004/kydland-bio.html) and Prescott (http://www.nobelprize.org/nobel_prizes/economic-sciences/laureates/2004/prescott-bio.html) (1977, 447-80, equation 5) uses the “expectation augmented” Phillips curve with the natural rate of unemployment of Friedman (1968) and Phelps (1968), which in the notation of Barro and Gordon (1983, 592, equation 1) is:
Ut = Unt – α(πt – πe) α > 0 (1)
Where Ut is the rate of unemployment at current time t, Unt is the natural rate of unemployment, πt is the current rate of inflation and πe is the expected rate of inflation by economic agents based on current information. Equation (1) expresses unemployment net of the natural rate of unemployment as a decreasing function of the gap between actual and expected rates of inflation. The system is completed by a social objective function, W, depending on inflation, π, and unemployment, U:
W = W(πt, Ut) (2)
The policymaker maximizes the preferences of the public, (2), subject to the constraint of the tradeoff of inflation and unemployment, (1). The total differential of W set equal to zero provides an indifference map in the Cartesian plane with ordered pairs (πt, Ut - Un) such that the consistent equilibrium is found at the tangency of an indifference curve and the Phillips curve in (1). The indifference curves are concave to the origin. The consistent policy is not optimal. Policymakers without discretionary powers following a rule of price stability would attain equilibrium with unemployment not higher than with the consistent policy. The optimal outcome is obtained by the rule of price stability, or zero inflation, and no more unemployment than under the consistent policy with nonzero inflation and the same unemployment. Taylor (1998LB) attributes the sustained boom of the US economy after the stagflation of the 1970s to following a monetary policy rule instead of discretion (see Taylor 1993, 1999). It is not uncommon for effects of regulation differing from those intended by policy. Professors Edward C. Prescott and Lee E. Ohanian (2014Feb), writing on “US productivity growth has taken a dive,” on Feb 3, 2014, published in the Wall Street Journal (http://online.wsj.com/news/articles/SB10001424052702303942404579362462611843696?KEYWORDS=Prescott), argue that impressive productivity growth over the long-term constructed US prosperity and wellbeing. Prescott and Ohanian (2014Feb) measure US productivity growth at 2.5 percent per year since 1948. Average US productivity growth has been only 1.1 since 2011. Prescott and Ohanian (2014Feb) argue that living standards in the US increased at 28 percent in a decade but with current slow growth of productivity will only increase 12 percent by 2024. There may be collateral effects on productivity growth from policy design similar to those in Kydland and Prescott (1977). The Bureau of Labor Statistics important report on productivity and costs released on Mar 6, 2014 (http://www.bls.gov/lpc/) supports the argument of decline of productivity in the US analyzed by Prescott and Ohanian (2014Feb). Table II-2 provides the annual percentage changes of productivity, real hourly compensation and unit labor costs for the entire economic cycle from 2007 to 2013. The data confirm the argument of Prescott and Ohanian (2014Feb): productivity increased cumulatively 2.5 percent from 2011 to 2013 at the average annual rate of 0.8 percent. The situation is direr by excluding growth of 1.5 percent in 2013, which leaves an average of 0.5 percent for 2011 and 2013. Average productivity growth for the entire economic cycle from 2007 to 2013 is only 1.6 percent. The argument by Prescott and Ohanian (2014Feb) is proper in choosing the tail of the business cycle because the increase in productivity in 2009 of 3.1 percent and 3.3 percent in 2013 consisted on reducing labor hours.
In revealing research, Edward P. Lazear and James R. Spletzer (2012JHJul22) use the wealth of data in the valuable database and resources of the Bureau of Labor Statistics (http://www.bls.gov/data/) in providing clear thought on the nature of the current labor market of the United States. The critical issue of analysis and policy currently is whether unemployment is structural or cyclical. Structural unemployment could occur because of (1) industrial and demographic shifts and (2) mismatches of skills and job vacancies in industries and locations. Consider the aggregate unemployment rate, Y, expressed in terms of share si of a demographic group in an industry i and unemployment rate yi of that demographic group (Lazear and Spletzer 2012JHJul22, 5-6):
Y = ∑isiyi (1)
This equation can be decomposed for analysis as (Lazear and Spletzer 2012JHJul22, 6):
∆Y = ∑i∆siy*i + ∑i∆yis*i (2)
The first term in (2) captures changes in the demographic and industrial composition of the economy ∆si multiplied by the average rate of unemployment y*i , or structural factors. The second term in (2) captures changes in the unemployment rate specific to a group, or ∆yi, multiplied by the average share of the group s*i, or cyclical factors. There are also mismatches in skills and locations relative to available job vacancies. A simple observation by Lazear and Spletzer (2012JHJul22) casts intuitive doubt on structural factors: the rate of unemployment jumped from 4.4 percent in the spring of 2007 to 10 percent in October 2009. By nature, structural factors should be permanent or occur over relative long periods. The revealing result of the exhaustive research of Lazear and Spletzer (2012JHJul22) is:
“The analysis in this paper and in others that we review do not provide any compelling evidence that there have been changes in the structure of the labor market that are capable of explaining the pattern of persistently high unemployment rates. The evidence points to primarily cyclic factors.”
The theory of secular stagnation cannot explain sudden collapse of the US economy and labor markets. The theory of secular stagnation departs from an aggregate production function in which output grows with the use of labor, capital and technology (see Pelaez and Pelaez, Globalization and the State, Vol. I (2008a), 11-6). Simon Kuznets (1971) analyzes modern economic growth in his Lecture in Memory of Alfred Nobel:
“The major breakthroughs in the advance of human knowledge, those that constituted dominant sources of sustained growth over long periods and spread to a substantial part of the world, may be termed epochal innovations. And the changing course of economic history can perhaps be subdivided into economic epochs, each identified by the epochal innovation with the distinctive characteristics of growth that it generated. Without considering the feasibility of identifying and dating such economic epochs, we may proceed on the working assumption that modern economic growth represents such a distinct epoch - growth dating back to the late eighteenth century and limited (except in significant partial effects) to economically developed countries. These countries, so classified because they have managed to take adequate advantage of the potential of modern technology, include most of Europe, the overseas offshoots of Western Europe, and Japan—barely one quarter of world population.”
Chart II-7 provides nonfarm-business labor productivity, measured by output per hour, from 1947 to 2014. The rate of productivity increase continued in the early part of the 2000s but then softened and fell during the global recession. The interruption of productivity increases occurred exclusively in the current business cycle. Lazear and Spletzer (2012JHJul22) find “primarily cyclic” factors in explaining the frustration of currently depressed labor markets in the United States. Stagnation of productivity is another cyclic event and not secular trend. The theory and application of secular stagnation to current US economic conditions is void of reality.
Chart II-7, US, Nonfarm Business Labor Productivity, Output per Hour, 1947-2014, Index 2009=100
Source: US Bureau of Labor Statistics http://www.bls.gov/lpc/
Table II-6 expands Table II-2 providing more complete measurements of the Productivity and Cost research of the Bureau of Labor Statistics. The proper emphasis of Prescott and Ohanian (2014Feb) is on the low productivity increases from 2011 to 2013. Labor productivity increased 3.3 percent in 2010 and 3.1 percent in 2009. There is much stronger yet not sustained performance in 2010 with productivity growing 3.3 percent because of growth of output of 3.2 percent with decline of hours worked of 0.1 percent. Productivity growth of 3.1 percent in 2009 consists of decline of output by 4.3 percent while hours worked collapsed 7.2 percent, which is not a desirable route to progress. The expansion phase of the economic cycle concentrated in one year, 2010, with underperformance in the remainder of the expansion from 2011 to 2013 of productivity growth at average 0.8 percent per year.
Table II-6, US, Productivity and Costs, Annual Percentage Changes 2007-2013
| 2013 | 2012 | 2011 | 2010 | 2009 | 2008 | 2007 | |
| Productivity | 0.5 | 1.5 | 0.5 | 3.3 | 3.1 | 0.8 | 1.6 |
| Output | 2.2 | 3.7 | 2.5 | 3.2 | -4.3 | -1.3 | 2.3 |
| Hours Worked | 1.7 | 2.2 | 2.0 | -0.1 | -7.2 | -2.0 | 0.7 |
| Employment | 1.8 | 2.0 | 1.5 | -1.2 | -5.7 | -1.5 | 0.9 |
| Average Weekly Hours Worked | -0.2 | 0.2 | 0.5 | 1.1 | -1.6 | -0.6 | -0.2 |
| Hourly Compensation | 1.6 | 2.6 | 2.5 | 2.1 | 1.1 | 2.7 | 4.3 |
| Consumer Price Inflation | 1.5 | 2.1 | 3.2 | 1.6 | -0.4 | 3.8 | 2.8 |
| Real Hourly Compensation | 0.1 | 0.5 | -0.7 | 0.4 | 1.5 | -1.1 | 1.4 |
| Non-labor Payments | 3.8 | 6.5 | 4.0 | 7.3 | -0.1 | -0.4 | 3.4 |
| Output per Job | 0.3 | 1.7 | 1.0 | 4.4 | 1.5 | 0.2 | 1.4 |
Source: US Bureau of Labor Statistics http://www.bls.gov/lpc/
Productivity growth can bring about prosperity while productivity regression can jeopardize progress. Cobet and Wilson (2002) provide estimates of output per hour and unit labor costs in national currency and US dollars for the US, Japan and Germany from 1950 to 2000 (see Pelaez and Pelaez, The Global Recession Risk (2007), 137-44). The average yearly rate of productivity change from 1950 to 2000 was 2.9 percent in the US, 6.3 percent for Japan and 4.7 percent for Germany while unit labor costs in USD increased at 2.6 percent in the US, 4.7 percent in Japan and 4.3 percent in Germany. From 1995 to 2000, output per hour increased at the average yearly rate of 4.6 percent in the US, 3.9 percent in Japan and 2.6 percent in Germany while unit labor costs in USD fell at minus 0.7 percent in the US, 4.3 percent in Japan and 7.5 percent in Germany. There was increase in productivity growth in Japan and France within the G7 in the second half of the 1990s but significantly lower than the acceleration of 1.3 percentage points per year in the US. Table II-7 provides average growth rates of indicators in the research of productivity and growth of the US Bureau of Labor Statistics. There is dramatic decline of productivity growth in the whole cycle from 2.2 percent per year on average from 1947 to 2013 to 1.6 percent per year on average from 2007 to 2013. Productivity increased at the average rate of 2.3 percent from 1947 to 2007. There is profound drop in the average rate of output growth from 3.4 percent on average from 1947 to 2013 to 1.0 percent from 2007 to 2013. Output grew at 3.7 percent per year on average from 1947 to 2007. The US maintained growth at 3.0 percent on average over entire cycles with expansions at higher rates compensating for contractions. Growth at trend in the entire cycle from IVQ2007 to IQ2014 would have accumulated to 21.2 percent. GDP in IQ2014 would be $18,172.7 billion (in constant dollars of 2009) if the US had grown at trend, which is higher by $2,269.8 billion than actual $15,902.9 billion. There are about two trillion dollars of GDP less than at trend, explaining the 27.4 million unemployed or underemployed equivalent to actual unemployment of 16.8 percent of the effective labor force (http://cmpassocregulationblog.blogspot.com/2014/05/financial-volatility-mediocre-cyclical.html and earlier http://cmpassocregulationblog.blogspot.com/2014/04/interest-rate-risks-twenty-eight.html). US GDP in IQ2014 is 12.5 percent below than at trend. US GDP grew from $14,996.1 billion in IVQ2007 in constant dollars to $15,902.9 billion in IQ2014 or 6.0 percent at the average annual equivalent rate of 0.9 percent. The US missed the opportunity to grow at higher rates during the expansion and it is difficult to catch up because growth rates in the final periods of expansions tend to decline. The US missed the opportunity for recovery of output and employment always afforded in the first four quarters of expansion from recessions. Zero interest rates and quantitative easing were not required or present in successful cyclical expansions and in secular economic growth at 3.0 percent per year and 2.0 percent per capita as measured by Lucas (2011May). There is cyclical uncommonly slow growth in the US instead of allegations of secular stagnation. The antithesis of secular stagnation is cyclical slow growth. The policy design deserves consideration of Kydland and Prescott (1977) and Prescott and Ohanian (2014Feb) to induce productivity growth for future progress. Hourly compensation increased at the average yearly rate of 5.1 percent from 1947 to 2013 and consumer price inflation at 3.6 percent with real hourly compensation increasing at the average yearly rate of 1.6 percent. Hourly compensation increased at the average yearly rate of 2.1 percent from 2007 to 2013 while consumer price inflation increased at 2.0 percent with real hourly compensation changing at the average yearly rate of 0.1 percent. Hourly compensation increased at the average rate of 5.4 percent from 1947 to 2007 and the consumer price index at 3.8 percent for real hourly compensation of 1.7 percent per year. While hours worked increased at the average yearly rate of 1.2 percent from 1947 to 2013, hours worked fell 3.7 percent from 2007 to 2013. Hours worked increased at the average rate of 1.4 percent from 1947 to 2007. While employment increased at the average yearly rate of 1.4 percent from 1947 to 2013, employment fell 3.3 percent from 2007 to 2013. Employment increased at the average rate of 1.6 percent from 1947 to 2007.
Table II-7, US, Productivity and Costs, Average Annual Percentage Changes 2007-2013 and 1947-2013
| Average Annual Percentage Rate 2007-2013 | Average Annual Percentage Rate 1947-2007 | Average Annual Percentage Rate 1947-2013 | |
| Productivity | 1.6 | 2.3 | 2.2 |
| Output | 1.0 | 3.7 | 3.4 |
| Hours | -3.7* | 1.4 | 1.2 |
| Employment | -3.3* | 1.6 | 1.4 |
| Average Weekly Hours | -0.5* | -14.6* | -15.0* |
| Hourly Compensation | 2.1 | 5.4 | 5.1 |
| Consumer Price Inflation | 2.0 | 3.8 | 3.6 |
| Real Hourly Compensation | 0.1 | 1.7 | 1.6 |
| Unit Labor Costs | 0.5 | 3.0 | |
| Unit Non-labor Payments | 2.5 | 3.5 | 3.4 |
| Output per Job | 1.5 | 2.0 | 2.0 |
* Percentage Change
Source: US Bureau of Labor Statistics http://www.bls.gov/lpc/
Unit labor costs increased sharply during the Great Inflation from the late 1960s to 1981 as shown by sharper slope in Chart II-8. Unit labor costs continued to increase but at a lower rate because of cyclic factors and not because of imaginary secular stagnation.
Chart II-8, US, Nonfarm Business, Unit Labor Costs, 1947-2014, Index 2009=100
Source: US Bureau of Labor Statistics http://www.bls.gov/lpc/
Real hourly compensation increased at relatively high rates after 1947 to the early 1970s but reached a plateau that lasted until the early 1990s, as shown in Chart II-9. There were rapid increases until the global recession. Cyclic factors and not alleged secular stagnation explain the interruption of increases in real hourly compensation.
Chart II-9, US, Nonfarm Business, Real Hourly Compensation, 1947-2014, Index 2009=100
Source: US Bureau of Labor Statistics http://www.bls.gov/lpc/
© Carlos M. Pelaez, 2009, 2010, 2011, 2012, 2013, 2014.
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