Remind me to take some economics courses, so I can contribute intelligently.
Pretty much the only thing that I feel like I have a dog in the fight in, is the discussion about skills gaps.
That’s a conversation I would like to see in depth.
I actually have a bachelors degree in computer programming, Igot it in the Air Force, because I figured it would help me with whatever I do.
But my job is blue-collar, skilled technical, working with Welder’s, pipefitters, millwrights, engineers.
I make more money than programming, because it’s harder for companies to find skilled technical labor than it is computer programmers.
My 21-year-old daughter, got pregnant and had a baby earlier this year, single mom (Not a brag, just made a mistake and we are pro-life in a non-force on others way).
She had already failed out of college, studying the normal liberal arts stuff.
She knew she had to do something, so we sat down and talked about her options, re-what skills are really needed to survive, and thrive.
She ended up choosing, at my encouragement, a mechatronics program (Fixing robots on automated systems) at the local community college. Equal parts electronics, electro mechanical, hydraulic, and coding.
She is absolutely loving it, and, this is brag, she has the top grades in the class, despite some of her class meets already working in related field.
She fully expects to get a job starting out making 30 bucks an hour. Amazon is building one of their super distribution centers right beside the school. They are already bugging the school, saying they need more technicians to help them maintain their robots.
Her class cohort consists of 13 people. Nowhere near enough to satisfy the demand. There are probably 50 times at number of local students who are in rolled in normal academic programs at schools in the area who will probably fail. Many of these, would have success in programs like my daughters.
Part of the skills gap, is cultural. We tell all these kids that they need a college degree to be successful. Or they need to learn how to code. But there is a big gap, where the economic activity actually happens.
And quite simply, a lot of talented students are getting lead wrong.
Skills follow economic activity, but the presence of skills also help companies decide where and what to do. China is so strong in technical production because even as wages rise there, they have access to the technical expertise needed for these areas.
I dictated this whole thing on my phone. Apologize for any grammatical and punctuation mistakes.
I really don’t think we can increase our domestic production of these people though. I think with the raw talent that these positions require, it’s marginal about whether we have that much untapped potential.
The top 1%, we’re gonna need to continue to steal from other countries.
My husband and I have both worked at various tech startups. He has worked with, I think, 4 or 5 India Institute of Technology Gold Medal Winners. The Gold Medal goes to the top student at IIT each year. These people are just phenomenally brilliant and productive, and the US has been lucky to siphon them off. You can't just replace one of these guys with some random American. I'm all in favor of stealing the top 1%.
Plus by moving to the US these people earn vastly more money than they would in their home countries and can send back remittances they otherwise might not have. It's on net a better deal for the US, but it's not a complete and total loss for the home countries.
The low-hanging fruit is that top undergrads are highly artificially selective and could easily be expanded. Places like Florida, Alabama, Oklahoma, Texas A&M, and UT Dallas have more National Merit students than the Ivies every year because they admit tons of smart kids from Texas and the South and give them good scholarships. Those are great schools but lots of those students would probably be more productive at Harvard. We know they can hack it because top undergrads already admit tons of students who aren't that smart who go to target high schools, have prominent parents, are athletes, etc.
If the U.S. is serious about reviving its manufacturing sector, my hypothesis is this is what is required. We have to copy the Shenzhen model of having a dense region of skilled labor and industry. It's most likely too late for competing in technological device production, but "green" energy seems like a smart place to invest. Of course this would require large government investment which the US doesn't seem to have the stomach for.
Congratulations on raising what sounds like a wonderful young woman and on the grandbaby. Thank you for sharing.
I’ve also seen this in my own family, where some of the folks who did better in school and have college degrees are struggling compared to the ones who became plumbers or took up some other trade, largely as a last resort having exhausted their educational possibilities.
One thing that I think could be going on is that these trades are legitimately just harder work—like, an average work day is less pleasant—compared to going to an office, for most people, and the extra money might not be enough to make up for it for everyone.
I would also add that as far as I know the way to make money in plumbing is by owning your own business. But to succeed you need to be adept at sales, marketing, accounting, bidding, scheduling, and all the technical aspects of plumbing. It's not an easy job physically and it it requires quite a bit of brain power.
It's not like, 'If you're not smart enough for college be a plumber." Being a successful plumbing requires quite a bit of intelligence.
"couldn't you just profitably work for a small subcontractor? "
In that case your earnings are going to be significantly more meager. A quick googling says working as a plumber for someone else in NYC pays $28.14/hr. The rate they charge is about $100/hr. If you're self employed you're capturing a lot more of that $100.
I think you hint at the problem in that post. To succeed in anything you need a certain amount of hustle and savvy. If someone doesn't have what it takes to turn a degree in English into a job as a director of social media marketing or a software documentation writer or whatever, they probably don't have what it takes to be a successful plumber either.
That’s part of it for sure. But I don’t think that’s entirely it. What I’m trying to say is that for many folks—especially women, who are often not treated very well in trades—the extra wages don’t make up for the extra pain. One reason to go to college, in other words, is that your shitty job is less shitty (from your perspective) than the other jobs on offer.
<i>And quite simply, a lot of talented students are getting lead wrong.</i>
The other issue is that there aren't all that many talented students. If every kid took the SAT the median (median!) combined score would be 800. I think it's very dangerous to say there is this vast ocean of untapped talent. There really isn't.
How much talent are we talking about here, though? There used to be a lot more welders, plumbers and electricians per capita than there are now, right? Looks like there are a bunch of people who could weld, plumb or wire and be paid good wages for it, but who are not welding, plumbing or wiring.
Would that be partly because after the crash of 2008, for a while construction crashed too, and a whole cohort of people who should have become plumbers and electricians but didn't, because the jobs weren't there (and certainly at that time existing plumbers and electricians would have been in no hurry to train new ones)?
There are not enough people in the skilled trades to build the housing we need in California, and that is one reason it is not being built. (There are others.) I haven't heard of robots being used in construction work.
Burdensome land use and permitting regulations are incontestably reasons that more homes aren't being built. But also, construction costs are sky-high. Even when the developer has bought the expensive land and gone through the stupidly drawn-out permitting process, they still have to build the building and they tell me they have to pay very high rates for subcontractors in the skilled trades, and it's hard to get them.
The construction industry collapsed in California in the 2008 recession, and for some reason never came all the way back. It feels like potential contractors and potential workers in the skilled trades are leaving money on the table.
There are efforts in the California legislature to address this. Housing champion Scott Weiner says it is one of his top legislative priorities.
Yes. Noah Smith has written about this. We have so many layers of bureaucracy. So many protections, and regulations. This is probably more to blame on Democrats than Republicans.
"But there is still a hell of a lot of people with 1000 to 1200 SAT scores working at Starbucks."
Are there? I've seen a number of studies contrasting what people think most kids major in and what they actually major in. The number of liberal arts majors is very low for example. I think by far the most popular major is business - accounting, marketing, finance, etc.
When we start having a conversation about housing here, I hope to learn more about the skills gap and what to do about it. I live in California, home of not enough housing and ridiculously high housing prices. It's hard to build housing here, and one of the reasons is that there are not enough skilled workers and so the workers in the skilled trades have to be paid a lot and developers might have to wait for workers to be available, at great expense. So then a housing complex that might have been built if it could have been built more quickly and cheaply ends up not penciling out.
I really don't understand why the Fed is consistently so focused on coming in just short of 2% inflation. Like, if your goal is really 2% over the longer term and you're consistently coming in under, why not just keep monetary policy loose until you're really at 2.5%+ for multiple quarters and THEN raise rates. A year where we exceed a 2% target isn't going to kill us.
Sometimes I wonder if my view would be different if I had lived through 70s, but it feels like there is this excessive fear of even just slightly above target inflation.
Part of it could be the wink-wink-nod-nod nature of how "inflation" is being calculated with a thumb on top of it to minimize the entitlement program cost of living adjustments. Bloomberg had a good article about this but COL > Inflation and has been for some time.
Bloomberg and Fortune both covered this rising COL vs. inflation this year but they're behind paywalls. There's a bunch of articles about "lose of social security buyer power" as a result of this dynamic. One estimate I saw was that even with the COLA increases, since 2000 SS has lost a third of it's buying power. Now ... non-conspiracy theorist that's more a function of the runaway prescription drug prices and the disproportionate share of senior spending on them. Maybe.
a couple months ago, this is exactly what powell said they're gonna do. I know they know what an average is and I'm baffled as to why this was considered a groundbreaking policy shift. It's obviously good but it was also just ... obvious.
Good point about the Fed board. Given the recent Shelton confirmation fight, with what looks to have been attempted sabotage of the Fed by the GOP, it is unclear that a 52-48 Senate would let anyone reasonable be seated in a Fed vacancy. I think it's naïve to say that the Fed appointments will be treated any differently than the Federal Bench during the Biden admin by McConnell. Plus, there would be a lot less grassroots energy urging Biden to play hardball with the Fed than some other appointments, as it is so obscure.
Maybe the business community would be really upset at obstruction, but I think this would only be if things got genuinely unworkable, not just if the GOP tried to money with the body's ideological leaning through appointments manipulation.
I love a good gerontocracy as much as the next guy. But, she's 74. Maybe fear of the stagflation of the 1970s rates higher in her mind because it occurred when she was in her early 30s. It's certainly great to remember history but it's also important to weigh 1972, 1929, 1907, etc. the same and don't rate 1972 higher because you personally remember it.
it's also worth noting that the economists in this age bracket are also the authors of a lot of textbooks. would love to seem some NLP work on how much of the content in econ textbooks is about the dangerous of inflation vs the dangers of slack labor markets lol
Or the dangers of deflation. It seems likely that immigration is going to be greatly restricted going forward and the birth rate is 1.77 births per women. Japan has proven that a shrinking population is very highly deflationary.
Beyond what was in vogue during her formative years, I also wonder generally about the relationship between the age of policy makers and their time horizon when analyzing the merits of different policies. Knowing that you may be dead by the time the impact of your decisions are felt, has to affect how you make those decisions.
I hear this a lot from older people scarred by the inflation of the 80s. They are also the ones talking about the increasing national debt as a burden on future generations (when a democrat is in office anyway). Experience is a useful quality, but predicting everything will be like it was before doesn't always hold true.
generally my response to the future generations thing is, "you're in luck, since i'll be one alive paying for it, not you, and i still say spend spend spend"
I shudder every time I see "skills gap". But just when you think the conversation couldn't get any dumber a couple years go by and the timing of the hike was also the era of the, "do video games cause unemployment?" stuff came around.
What has Yellen, Brainard, et al said about what they would've done differently? Has there been any econometric soul searching among them revealed in recent speeches/interviews?
When the labor market is tight, you take who you can get and train them as needed. When there's a ton of labor market slack, you can be really picky and get overqualified applicants. There's no skills gap, just a different market clearing price because the supply/demand curves shifted.
This is an excellent chain and very clear explanation - thanks Rob and Rory! Pushed me to re-review the skills-gap research (and its wide debunking in most academic and policy circles).
I'm wondering, though, where job quality and underemployment come into the picture - is it just that BLS metrics fail to capture complete picture or labor market slack by overstating the employment situation (in circumstances where we do not see wage growth even though unemployment looks really low) or is it a sign that worker bargaining power isn't being factored in, even when unemployment looks low and employers can keep wages low, and if improvements in human capital (and worker rights) would help improve that? (or other factors I haven't considered off the top of my head)
Some other interesting articles on skills-gap argument and the evidence around it:
i suppose the fact that minimum wage hikes, not to mention this year's stimulus checks, haven't caused mass unemployment does give some weight towards the "worker bargaining power" arguments. hints at a gap between marginal value of a worker and their actual wage.
those are some good reads. i appreciate how succinctly politifact puts it ...
> Employers maintain there’s a skills gap, while some labor economists say that skilled workers desire more pay than employers want to provide.
and brookings line ...
> paradoxically, many business leaders continue to center the problem with labor markets on “unqualified” individuals without the right skills
employers want higher skilled employees for the same price. who wouldn't?! lol
The EPI data I think has a good framing and (imo) the correct conclusion, ie aggregate demand. Even "high skilled" workers still showed slow wage growth and higher unemployment than that cohort was accustomed to. I commend them for putting that out in 2014.
As for how BLS can better capture some of this, :shrug:. The existence of this other research indicates there are ways of doing so, but BLS' super power is also in terms of long historical time series. Idk the mechanical details of how the BLS does the heroic work they do. Statistician, not economist, admitting personal limitations here.
This would probably work for a lot of jobs that don't require a lot of training or formal education. It is not true otherwise. In a lot of cases you just invest in equipment that replaces the need for skilled labor. and you never go back.
I don’t believe this entirely. Companies have to factor risk into it. They have to factor the extra training costs into deciding to make any economic moves. They can choose to go into certain fields, in certain areas. Some technical skills can take a couple of months of training, some years.
and if the ROI available on training is high enough, then they'll do it. if not, then i dont think that's a skills gap, i think that's the company's economic tradeoff.
instead of talking about skills gap i think it's potentially more productive (and closer to what you're getting at) to talk about potential positive externalities to widespread increases in human capital. if a higher skilled, better educated workforce require less training then perhaps the roi on hiring the marginal worker is more compelling.
that analysis is true at any point in the business cycle but i think is more influential in a tight labor market since the marginal worker will be more expensive.
there's very much a "why not both?" in here. we should care deeply about full employment and human capital, but the latter doesn't fix the former. the former def does, however, make investing in the latter more compelling
Love this choice of article MattY. It's a good refresher for sure, very engaging. I'm honestly just glad there's a well written author out there that shares most of my political and economic priors.
It always seems like someone shares some of my political views then writes a piece praising Stephanie Kelton/MMT, or someone that shares most of my views on economic policy then gets upset at trans people. While it's good to read differing views, it's nice to have a niche too.
If you consider, housing, medical and education costs inflation is pretty high, and it seems like a lot of these decisions are being made based on a make believe economy where wages are reasonable and costs are stable.
Matt, thanks for this good post! You note at the end, "there is no actual evidence of any significant ideological disagreement between these three women about anything Treasury has authority over" (non-italics mine). What are the most important things that Treasury has authority over, and how does the Treasury Secretary's influence on fiscal stimulus compare with the OMB and NEC directors'? I guess it ultimately depends on who Biden listens to, but I don't know much about their usual roles and would be really interested in your thoughts!
Sort of seems like monetary policy doesn't have nearly as much power to change where we are in the unemployment/inflation dimension as everyone thought it did.
I'm not a classically trained economancer, but maybe it's more correct to think about the fed funds rate and QE as toggling us between unemployment and asset price inflation. The Fed can flood the economy with cheap cash, but it can't put that cash in people's hands. It all just builds up in the banking system, where it goes looking for a rate of return. The way you get money to earn more money is that you loan it out or use it to buy an asset, so equities and gold and houses and buttcoins get bid up for no other reason than there's a whole lot of money that needs to be invested.
Eventually, some of that money lands in the lap of a company that uses it to build a factory, then they hire some people to work there and unemployment drops. Only at this point do you start to get upward pressure on consumer price inflation when those people spend their wages.
I wonder what happens when A) the government starts spending big bucks on stimulus or B) we get UBI or some other mechanism that allows money to flow quickly from the Fed presses to consumers. I expect that A is way less inflationy than B, just becuase a lot of that stimulus is going to end up in the hands of large companies which may very well sit on it. B seems like it could lead to the huge inflation that was supposed to happen after QE and sustained 0% interest rates.
I feel like all of that is either total nonsense or super obvious, but I can't decide which one it is. Someone let me know pls!
All this macro stuff is interesting but outside of my ability to comment with any expertise. I am curious though about the consistency with with you have posted items early in the morning. As a writer who struggles with routine and what time of day to write (I find I have my best ideas in the evening but do the best work in the morning) let me ask you: do you write these posts when you get up or before you go to bed? I am very curious about your writing process. Has any of these time of day issues affected your desire to return to blogging? Do you like writing one larger article and then replies to comments all day? It seems like these articles take time to research and would be difficult to put together first thing in the morning.
Excellent post. One small quibble about the suggestion that 1/4% rate hikes are not that important. That's usually the case, but not always. What matters is the gap between the policy rate and the so-called "natural interest rate". A rate hike also reduces the natural rate, by slightly slowing the economy. Normally this is not a big deal, but it can be at a turning point in the business cycle. You could argue that the initial downturn in December 2007 was caused by the Fed not cutting rates fast enough, at a time when the natural rate was falling rapidly due to the housing crisis.
One can also make the argument that the rate hike of December 2015, combined with some less than dovish forward guidance, contributed to the slowdown in GDP growth in 2016, which might have even cost Clinton the election. That's speculative, but there is no reason to assume that even a 25 basis point rise is inconsequential---it depends on the economic context in which it occurs. Interest rates do not measure the stance of monetary policy; it's the market rate minus the natural rate that matters.
As far as Kinsale's comment about ammunition, a rise in interest rates actually reduces the Fed's ammo, by reducing the natural interest rate (i.e. slowing the economy). The Fed's ability to influence the economy through conventional policy depends on the level of the natural rate of interest, not the market rate.
Love this! Give me more wonky takes of past Fed decisions, monetary vs fiscal policy, and conversations around the tools used by the Fed beyond interest rate setting. Bonus if we can compare the actions of the US to Europe over the past decade or so.
My takeaway from this is Yellen's mistake was minor, she is very well qualified, and Brainard would be a good Fed chair - lets hope both women get these jobs.
Warren's opposition to Summers was not without merit, you sort of glossed over that Matt.
I agree with most of this article, but I will say that it is easy to classify something as a “mistake” which at the time seemed to be very sound economic footing. Why raise the Fed Funds rate? Our old friend the Phillips Curve, of course. This relationship between inflation and unemployment had held for the past several decades, and now looks tired and outdated only with the benefit of hindsight.
At the time there was ample evidence to support Yellen and Fischer’s position. Not only did you have lots of data to support this link between inflation and unemployment, you also did have unparalleled asset purchases from the Fed and by extension a large increase in the money supply. If you had to take an action with this as your background, I think most rational people would have a very difficult time choosing the more unsubstantiated claim. There was a lot of debate at the time about whether employment would accelerate given the large growth in the money supply, but it never came. That’s just hypothesis testing, and I’m not sure we assign blame to those who make the ultimately wrong call so long as it is well-grounded.
In fact, this article shows the diminishing value of QE1 (QE2?) and lowering the Fed Funds rate had on the unemployment rate! The Fed pulled out incredibly unconventional tools and only managed an unemployment rate slightly below 5% by Jan 2017. When I look at those chart lines, that is further affirmation of anemic fiscal policy being the culprit, rather than slightly increasing the Fed Funds rate.
this st louis fed post says that the data that should show the phillip's curve has basically just been noise since 1970. it also has this bit about Powell's confirmation testimony
> He noted that the connection between economic slack and inflation was strong 50 years ago. However, he said that it has become “weaker and weaker and weaker to the point where it’s a faint heartbeat that you can hear now.”
I'm not so sure that in 2015 the data in favor of the phillip's curve was as rock solid as you're claiming.
When I look around ... I see asset bubbles inflating everywhere. Seems to be the result of taking the risk free rate to zero. Just look at what poured into VC starting in 2012 and then the throughline to the SoftBank Vision Fund for why this is a bad idea. For those that own assets ... this is awesome but certainly also the cause of this widening wealth inequality especially post COVID.
Remind me to take some economics courses, so I can contribute intelligently.
Pretty much the only thing that I feel like I have a dog in the fight in, is the discussion about skills gaps.
That’s a conversation I would like to see in depth.
I actually have a bachelors degree in computer programming, Igot it in the Air Force, because I figured it would help me with whatever I do.
But my job is blue-collar, skilled technical, working with Welder’s, pipefitters, millwrights, engineers.
I make more money than programming, because it’s harder for companies to find skilled technical labor than it is computer programmers.
My 21-year-old daughter, got pregnant and had a baby earlier this year, single mom (Not a brag, just made a mistake and we are pro-life in a non-force on others way).
She had already failed out of college, studying the normal liberal arts stuff.
She knew she had to do something, so we sat down and talked about her options, re-what skills are really needed to survive, and thrive.
She ended up choosing, at my encouragement, a mechatronics program (Fixing robots on automated systems) at the local community college. Equal parts electronics, electro mechanical, hydraulic, and coding.
She is absolutely loving it, and, this is brag, she has the top grades in the class, despite some of her class meets already working in related field.
She fully expects to get a job starting out making 30 bucks an hour. Amazon is building one of their super distribution centers right beside the school. They are already bugging the school, saying they need more technicians to help them maintain their robots.
Her class cohort consists of 13 people. Nowhere near enough to satisfy the demand. There are probably 50 times at number of local students who are in rolled in normal academic programs at schools in the area who will probably fail. Many of these, would have success in programs like my daughters.
Part of the skills gap, is cultural. We tell all these kids that they need a college degree to be successful. Or they need to learn how to code. But there is a big gap, where the economic activity actually happens.
And quite simply, a lot of talented students are getting lead wrong.
Skills follow economic activity, but the presence of skills also help companies decide where and what to do. China is so strong in technical production because even as wages rise there, they have access to the technical expertise needed for these areas.
I dictated this whole thing on my phone. Apologize for any grammatical and punctuation mistakes.
Just on programming: there is still a shortage at least at the top end of programming (Google etc. are always hiring) and the pay is very good
I really don’t think we can increase our domestic production of these people though. I think with the raw talent that these positions require, it’s marginal about whether we have that much untapped potential.
The top 1%, we’re gonna need to continue to steal from other countries.
My husband and I have both worked at various tech startups. He has worked with, I think, 4 or 5 India Institute of Technology Gold Medal Winners. The Gold Medal goes to the top student at IIT each year. These people are just phenomenally brilliant and productive, and the US has been lucky to siphon them off. You can't just replace one of these guys with some random American. I'm all in favor of stealing the top 1%.
Plus by moving to the US these people earn vastly more money than they would in their home countries and can send back remittances they otherwise might not have. It's on net a better deal for the US, but it's not a complete and total loss for the home countries.
The low-hanging fruit is that top undergrads are highly artificially selective and could easily be expanded. Places like Florida, Alabama, Oklahoma, Texas A&M, and UT Dallas have more National Merit students than the Ivies every year because they admit tons of smart kids from Texas and the South and give them good scholarships. Those are great schools but lots of those students would probably be more productive at Harvard. We know they can hack it because top undergrads already admit tons of students who aren't that smart who go to target high schools, have prominent parents, are athletes, etc.
If the U.S. is serious about reviving its manufacturing sector, my hypothesis is this is what is required. We have to copy the Shenzhen model of having a dense region of skilled labor and industry. It's most likely too late for competing in technological device production, but "green" energy seems like a smart place to invest. Of course this would require large government investment which the US doesn't seem to have the stomach for.
Congratulations on raising what sounds like a wonderful young woman and on the grandbaby. Thank you for sharing.
I’ve also seen this in my own family, where some of the folks who did better in school and have college degrees are struggling compared to the ones who became plumbers or took up some other trade, largely as a last resort having exhausted their educational possibilities.
One thing that I think could be going on is that these trades are legitimately just harder work—like, an average work day is less pleasant—compared to going to an office, for most people, and the extra money might not be enough to make up for it for everyone.
I would also add that as far as I know the way to make money in plumbing is by owning your own business. But to succeed you need to be adept at sales, marketing, accounting, bidding, scheduling, and all the technical aspects of plumbing. It's not an easy job physically and it it requires quite a bit of brain power.
It's not like, 'If you're not smart enough for college be a plumber." Being a successful plumbing requires quite a bit of intelligence.
If you were good at plumbing, but not at business, couldn't you just profitably work for a small subcontractor? Or does this not happen?
"couldn't you just profitably work for a small subcontractor? "
In that case your earnings are going to be significantly more meager. A quick googling says working as a plumber for someone else in NYC pays $28.14/hr. The rate they charge is about $100/hr. If you're self employed you're capturing a lot more of that $100.
I think you hint at the problem in that post. To succeed in anything you need a certain amount of hustle and savvy. If someone doesn't have what it takes to turn a degree in English into a job as a director of social media marketing or a software documentation writer or whatever, they probably don't have what it takes to be a successful plumber either.
That’s part of it for sure. But I don’t think that’s entirely it. What I’m trying to say is that for many folks—especially women, who are often not treated very well in trades—the extra wages don’t make up for the extra pain. One reason to go to college, in other words, is that your shitty job is less shitty (from your perspective) than the other jobs on offer.
<i>And quite simply, a lot of talented students are getting lead wrong.</i>
The other issue is that there aren't all that many talented students. If every kid took the SAT the median (median!) combined score would be 800. I think it's very dangerous to say there is this vast ocean of untapped talent. There really isn't.
How much talent are we talking about here, though? There used to be a lot more welders, plumbers and electricians per capita than there are now, right? Looks like there are a bunch of people who could weld, plumb or wire and be paid good wages for it, but who are not welding, plumbing or wiring.
Those are just easily mentioned trades.
What you need to do is look at the average age of welders, plumbers, technicians, other skilled blue-collar jobs.
The skilled people are aging out, not enough young people are joining them.
Solar panels are being put up by guys in their 40s and 50s, not dudes in their 20s and 30s.
Would that be partly because after the crash of 2008, for a while construction crashed too, and a whole cohort of people who should have become plumbers and electricians but didn't, because the jobs weren't there (and certainly at that time existing plumbers and electricians would have been in no hurry to train new ones)?
Maybe. Construction isnt in my area. I work in energy, used to work in aviation.
I just think we need to reimagine, and shifter popular culture slightly to encourage whatever is going to be in the future.
I’m just not sure it matches right now
"There used to be a lot more welders, plumbers and electricians per capita than there are now, right?"
Are there fewer plumbers and electricians? Do you have a link?
As for welders, I think this is probably the largest reason there aren't as many as their used to be:
https://i0.wp.com/streetfins.com/wp-content/uploads/2019/08/b40440d80944701fdd2193647e158657.jpg
There are not enough people in the skilled trades to build the housing we need in California, and that is one reason it is not being built. (There are others.) I haven't heard of robots being used in construction work.
I was under the impression that burdensome land use and permitting regulations were the main reasons more homes aren't being built in CA.
Burdensome land use and permitting regulations are incontestably reasons that more homes aren't being built. But also, construction costs are sky-high. Even when the developer has bought the expensive land and gone through the stupidly drawn-out permitting process, they still have to build the building and they tell me they have to pay very high rates for subcontractors in the skilled trades, and it's hard to get them.
The construction industry collapsed in California in the 2008 recession, and for some reason never came all the way back. It feels like potential contractors and potential workers in the skilled trades are leaving money on the table.
There are efforts in the California legislature to address this. Housing champion Scott Weiner says it is one of his top legislative priorities.
Yes. Noah Smith has written about this. We have so many layers of bureaucracy. So many protections, and regulations. This is probably more to blame on Democrats than Republicans.
Or more largely NIMBYism.
I know some shit hot welders, that probably have SAT scores in the 600s.
But there is still a hell of a lot of people with 1000 to 1200 SAT scores working at Starbucks.
It’s untapped, if what talent there is, is striving for jobs that don’t exist in the numbers they think.
"But there is still a hell of a lot of people with 1000 to 1200 SAT scores working at Starbucks."
Are there? I've seen a number of studies contrasting what people think most kids major in and what they actually major in. The number of liberal arts majors is very low for example. I think by far the most popular major is business - accounting, marketing, finance, etc.
Hum you are right as history and psychology are there as well. But overall its mostly a list of practical majors with good employment prospects.
Business. 19 percent. 364,000 degrees. 0:52.
Health professions and related programs. 11 percent. 216,000 degrees.
Social sciences and history. 9 percent. 167,000 degrees.
Psychology. 6 percent. 118,000 degrees. 0:55. ...
Biological and biomedical sciences. 6 percent. 110,000 degrees.
Engineering. 5 percent. 97,900 degrees.
Realistically, taking some economic courses will be less useful for these conversation than you might imagine.
Better off just reading blogs by economists and journalists who cover econ.
I think that reading some books on the history of Fed policy during economic crises is super useful.
Too Big To Fail by Andrew Ross Sorkin
Crashed by Adam Tooze
I’m actually a big follower of economics Twitter. I always have to Google these fancy phrases.
I’m a big reader though, I should just pick up a macro economics book for dummies.
Behavioral economics is much more interesting though. Game theory, incentives.
Maybe I should just subscribed at Magic money theory. That seems easy. Lol
When we start having a conversation about housing here, I hope to learn more about the skills gap and what to do about it. I live in California, home of not enough housing and ridiculously high housing prices. It's hard to build housing here, and one of the reasons is that there are not enough skilled workers and so the workers in the skilled trades have to be paid a lot and developers might have to wait for workers to be available, at great expense. So then a housing complex that might have been built if it could have been built more quickly and cheaply ends up not penciling out.
I really don't understand why the Fed is consistently so focused on coming in just short of 2% inflation. Like, if your goal is really 2% over the longer term and you're consistently coming in under, why not just keep monetary policy loose until you're really at 2.5%+ for multiple quarters and THEN raise rates. A year where we exceed a 2% target isn't going to kill us.
Sometimes I wonder if my view would be different if I had lived through 70s, but it feels like there is this excessive fear of even just slightly above target inflation.
Part of it could be the wink-wink-nod-nod nature of how "inflation" is being calculated with a thumb on top of it to minimize the entitlement program cost of living adjustments. Bloomberg had a good article about this but COL > Inflation and has been for some time.
Interesting. I'd be interested if you have a link to that!
Bloomberg and Fortune both covered this rising COL vs. inflation this year but they're behind paywalls. There's a bunch of articles about "lose of social security buyer power" as a result of this dynamic. One estimate I saw was that even with the COLA increases, since 2000 SS has lost a third of it's buying power. Now ... non-conspiracy theorist that's more a function of the runaway prescription drug prices and the disproportionate share of senior spending on them. Maybe.
a couple months ago, this is exactly what powell said they're gonna do. I know they know what an average is and I'm baffled as to why this was considered a groundbreaking policy shift. It's obviously good but it was also just ... obvious.
Good point about the Fed board. Given the recent Shelton confirmation fight, with what looks to have been attempted sabotage of the Fed by the GOP, it is unclear that a 52-48 Senate would let anyone reasonable be seated in a Fed vacancy. I think it's naïve to say that the Fed appointments will be treated any differently than the Federal Bench during the Biden admin by McConnell. Plus, there would be a lot less grassroots energy urging Biden to play hardball with the Fed than some other appointments, as it is so obscure.
Maybe the business community would be really upset at obstruction, but I think this would only be if things got genuinely unworkable, not just if the GOP tried to money with the body's ideological leaning through appointments manipulation.
Yeah, I’m very worried about this across the board.
I love a good gerontocracy as much as the next guy. But, she's 74. Maybe fear of the stagflation of the 1970s rates higher in her mind because it occurred when she was in her early 30s. It's certainly great to remember history but it's also important to weigh 1972, 1929, 1907, etc. the same and don't rate 1972 higher because you personally remember it.
it's also worth noting that the economists in this age bracket are also the authors of a lot of textbooks. would love to seem some NLP work on how much of the content in econ textbooks is about the dangerous of inflation vs the dangers of slack labor markets lol
Or the dangers of deflation. It seems likely that immigration is going to be greatly restricted going forward and the birth rate is 1.77 births per women. Japan has proven that a shrinking population is very highly deflationary.
the immigration decline is a big time concern. [insert 1 billion americans talking points here]
w that said, maybe if they were a little bit more worried about deflation we wouldn't have all just read a post about premature rate hikes ha
Beyond what was in vogue during her formative years, I also wonder generally about the relationship between the age of policy makers and their time horizon when analyzing the merits of different policies. Knowing that you may be dead by the time the impact of your decisions are felt, has to affect how you make those decisions.
I hear this a lot from older people scarred by the inflation of the 80s. They are also the ones talking about the increasing national debt as a burden on future generations (when a democrat is in office anyway). Experience is a useful quality, but predicting everything will be like it was before doesn't always hold true.
generally my response to the future generations thing is, "you're in luck, since i'll be one alive paying for it, not you, and i still say spend spend spend"
I shudder every time I see "skills gap". But just when you think the conversation couldn't get any dumber a couple years go by and the timing of the hike was also the era of the, "do video games cause unemployment?" stuff came around.
What has Yellen, Brainard, et al said about what they would've done differently? Has there been any econometric soul searching among them revealed in recent speeches/interviews?
And in a confirmation hearing, is there any other question to ask other than, "how do you know when the economy is at full employment?"
Good question!
Interested in your take on the skills gap.
When the labor market is tight, you take who you can get and train them as needed. When there's a ton of labor market slack, you can be really picky and get overqualified applicants. There's no skills gap, just a different market clearing price because the supply/demand curves shifted.
This is an excellent chain and very clear explanation - thanks Rob and Rory! Pushed me to re-review the skills-gap research (and its wide debunking in most academic and policy circles).
Brookings had an interesting piece recently on what the real gap is - opportunity and bargaining power: https://www.brookings.edu/blog/the-avenue/2020/09/09/the-labor-market-doesnt-have-a-skills-gap-it-has-an-opportunity-gap/
I'm wondering, though, where job quality and underemployment come into the picture - is it just that BLS metrics fail to capture complete picture or labor market slack by overstating the employment situation (in circumstances where we do not see wage growth even though unemployment looks really low) or is it a sign that worker bargaining power isn't being factored in, even when unemployment looks low and employers can keep wages low, and if improvements in human capital (and worker rights) would help improve that? (or other factors I haven't considered off the top of my head)
Some other interesting articles on skills-gap argument and the evidence around it:
https://www.politifact.com/factchecks/2013/feb/19/dave-joyce/rep-dave-joyce-says-millions-us-jobs-go-unfilled-e/
https://www.epi.org/publication/shortage-skilled-workers/
https://prospect.org/economy/skills-gap-holding-wages-down-weak-economy-among-things/
https://www.mckinsey.com/mgi/overview/in-the-news/why-the-jobs-problem-is-not-going-away
i suppose the fact that minimum wage hikes, not to mention this year's stimulus checks, haven't caused mass unemployment does give some weight towards the "worker bargaining power" arguments. hints at a gap between marginal value of a worker and their actual wage.
those are some good reads. i appreciate how succinctly politifact puts it ...
> Employers maintain there’s a skills gap, while some labor economists say that skilled workers desire more pay than employers want to provide.
and brookings line ...
> paradoxically, many business leaders continue to center the problem with labor markets on “unqualified” individuals without the right skills
employers want higher skilled employees for the same price. who wouldn't?! lol
The EPI data I think has a good framing and (imo) the correct conclusion, ie aggregate demand. Even "high skilled" workers still showed slow wage growth and higher unemployment than that cohort was accustomed to. I commend them for putting that out in 2014.
As for how BLS can better capture some of this, :shrug:. The existence of this other research indicates there are ways of doing so, but BLS' super power is also in terms of long historical time series. Idk the mechanical details of how the BLS does the heroic work they do. Statistician, not economist, admitting personal limitations here.
Just saw all these links. Going to bookmark
This would probably work for a lot of jobs that don't require a lot of training or formal education. It is not true otherwise. In a lot of cases you just invest in equipment that replaces the need for skilled labor. and you never go back.
before I bought into that idea i'd want some kind insight on the following ...
if it were that easy, wouldn't we have seen it in productivity numbers by now? those haven't budged in some time.
one vox writer says the whole concept was a lie https://www.vox.com/2019/1/7/18166951/skills-gap-modestino-shoag-ballance
I don’t believe this entirely. Companies have to factor risk into it. They have to factor the extra training costs into deciding to make any economic moves. They can choose to go into certain fields, in certain areas. Some technical skills can take a couple of months of training, some years.
It’s got to have an effect
and if the ROI available on training is high enough, then they'll do it. if not, then i dont think that's a skills gap, i think that's the company's economic tradeoff.
Or the company will go do it in another country where they can find those skills easier.
I just think that our education system, and our social culture, could be doing a better job.
We need more discussion on community colleges than we do on who gets into Harvard.
instead of talking about skills gap i think it's potentially more productive (and closer to what you're getting at) to talk about potential positive externalities to widespread increases in human capital. if a higher skilled, better educated workforce require less training then perhaps the roi on hiring the marginal worker is more compelling.
that analysis is true at any point in the business cycle but i think is more influential in a tight labor market since the marginal worker will be more expensive.
there's very much a "why not both?" in here. we should care deeply about full employment and human capital, but the latter doesn't fix the former. the former def does, however, make investing in the latter more compelling
Love this choice of article MattY. It's a good refresher for sure, very engaging. I'm honestly just glad there's a well written author out there that shares most of my political and economic priors.
It always seems like someone shares some of my political views then writes a piece praising Stephanie Kelton/MMT, or someone that shares most of my views on economic policy then gets upset at trans people. While it's good to read differing views, it's nice to have a niche too.
If you consider, housing, medical and education costs inflation is pretty high, and it seems like a lot of these decisions are being made based on a make believe economy where wages are reasonable and costs are stable.
The best thing about being an economist is that you will occasionally be right about something.
Matt, thanks for this good post! You note at the end, "there is no actual evidence of any significant ideological disagreement between these three women about anything Treasury has authority over" (non-italics mine). What are the most important things that Treasury has authority over, and how does the Treasury Secretary's influence on fiscal stimulus compare with the OMB and NEC directors'? I guess it ultimately depends on who Biden listens to, but I don't know much about their usual roles and would be really interested in your thoughts!
Sort of seems like monetary policy doesn't have nearly as much power to change where we are in the unemployment/inflation dimension as everyone thought it did.
I'm not a classically trained economancer, but maybe it's more correct to think about the fed funds rate and QE as toggling us between unemployment and asset price inflation. The Fed can flood the economy with cheap cash, but it can't put that cash in people's hands. It all just builds up in the banking system, where it goes looking for a rate of return. The way you get money to earn more money is that you loan it out or use it to buy an asset, so equities and gold and houses and buttcoins get bid up for no other reason than there's a whole lot of money that needs to be invested.
Eventually, some of that money lands in the lap of a company that uses it to build a factory, then they hire some people to work there and unemployment drops. Only at this point do you start to get upward pressure on consumer price inflation when those people spend their wages.
I wonder what happens when A) the government starts spending big bucks on stimulus or B) we get UBI or some other mechanism that allows money to flow quickly from the Fed presses to consumers. I expect that A is way less inflationy than B, just becuase a lot of that stimulus is going to end up in the hands of large companies which may very well sit on it. B seems like it could lead to the huge inflation that was supposed to happen after QE and sustained 0% interest rates.
I feel like all of that is either total nonsense or super obvious, but I can't decide which one it is. Someone let me know pls!
All this macro stuff is interesting but outside of my ability to comment with any expertise. I am curious though about the consistency with with you have posted items early in the morning. As a writer who struggles with routine and what time of day to write (I find I have my best ideas in the evening but do the best work in the morning) let me ask you: do you write these posts when you get up or before you go to bed? I am very curious about your writing process. Has any of these time of day issues affected your desire to return to blogging? Do you like writing one larger article and then replies to comments all day? It seems like these articles take time to research and would be difficult to put together first thing in the morning.
And, as people in the West Coast time zones, we miss ability to be able to comment early.
These damn east coasters get all the good comments.
Excellent post. One small quibble about the suggestion that 1/4% rate hikes are not that important. That's usually the case, but not always. What matters is the gap between the policy rate and the so-called "natural interest rate". A rate hike also reduces the natural rate, by slightly slowing the economy. Normally this is not a big deal, but it can be at a turning point in the business cycle. You could argue that the initial downturn in December 2007 was caused by the Fed not cutting rates fast enough, at a time when the natural rate was falling rapidly due to the housing crisis.
One can also make the argument that the rate hike of December 2015, combined with some less than dovish forward guidance, contributed to the slowdown in GDP growth in 2016, which might have even cost Clinton the election. That's speculative, but there is no reason to assume that even a 25 basis point rise is inconsequential---it depends on the economic context in which it occurs. Interest rates do not measure the stance of monetary policy; it's the market rate minus the natural rate that matters.
As far as Kinsale's comment about ammunition, a rise in interest rates actually reduces the Fed's ammo, by reducing the natural interest rate (i.e. slowing the economy). The Fed's ability to influence the economy through conventional policy depends on the level of the natural rate of interest, not the market rate.
Love this! Give me more wonky takes of past Fed decisions, monetary vs fiscal policy, and conversations around the tools used by the Fed beyond interest rate setting. Bonus if we can compare the actions of the US to Europe over the past decade or so.
My takeaway from this is Yellen's mistake was minor, she is very well qualified, and Brainard would be a good Fed chair - lets hope both women get these jobs.
Warren's opposition to Summers was not without merit, you sort of glossed over that Matt.
Good article!
I agree with most of this article, but I will say that it is easy to classify something as a “mistake” which at the time seemed to be very sound economic footing. Why raise the Fed Funds rate? Our old friend the Phillips Curve, of course. This relationship between inflation and unemployment had held for the past several decades, and now looks tired and outdated only with the benefit of hindsight.
At the time there was ample evidence to support Yellen and Fischer’s position. Not only did you have lots of data to support this link between inflation and unemployment, you also did have unparalleled asset purchases from the Fed and by extension a large increase in the money supply. If you had to take an action with this as your background, I think most rational people would have a very difficult time choosing the more unsubstantiated claim. There was a lot of debate at the time about whether employment would accelerate given the large growth in the money supply, but it never came. That’s just hypothesis testing, and I’m not sure we assign blame to those who make the ultimately wrong call so long as it is well-grounded.
In fact, this article shows the diminishing value of QE1 (QE2?) and lowering the Fed Funds rate had on the unemployment rate! The Fed pulled out incredibly unconventional tools and only managed an unemployment rate slightly below 5% by Jan 2017. When I look at those chart lines, that is further affirmation of anemic fiscal policy being the culprit, rather than slightly increasing the Fed Funds rate.
this st louis fed post says that the data that should show the phillip's curve has basically just been noise since 1970. it also has this bit about Powell's confirmation testimony
> He noted that the connection between economic slack and inflation was strong 50 years ago. However, he said that it has become “weaker and weaker and weaker to the point where it’s a faint heartbeat that you can hear now.”
I'm not so sure that in 2015 the data in favor of the phillip's curve was as rock solid as you're claiming.
https://www.stlouisfed.org/open-vault/2020/january/what-is-phillips-curve-why-flattened
When I look around ... I see asset bubbles inflating everywhere. Seems to be the result of taking the risk free rate to zero. Just look at what poured into VC starting in 2012 and then the throughline to the SoftBank Vision Fund for why this is a bad idea. For those that own assets ... this is awesome but certainly also the cause of this widening wealth inequality especially post COVID.