Much More Than Payrolls

Much More Than Payrolls

By |2018-07-06T11:43:10+00:00July 6th, 2018|Currencies, Economy, Federal Reserve/Monetary Policy, Markets|

There are two very big problems with these constant, increasingly shrill labor market anecdotes. The first is that they don’t end up meaning what the tellers think they do. The purpose of these stories is clear enough, it’s just that the logic doesn’t work in the end.

Here’s another example from the Wall Street Journal this week. Companies are now, apparently, paying interns who used to work for nothing. The story starts, “A tight U.S. labor market is squeezing out the unpaid internship.” OK, sounds good. Consistent with the unemployment rate (that ticked up to 4.0% in June as the labor force actually gained last month).

But:

“A company that could afford to get an ‘A’ player are [sic] probably happy with a ‘B’ player,” said Tony Lee, vice president of editorial and overseas talent acquisition at the Society for Human Resource Management, a membership association. “A position might be sitting open for four months, and if that means dropping the standards a bit, so be it.”

No, no, no. If you drop the standards “a bit” after four months that simply means you aren’t willing to pay the market rate for the employee you actually want, entry level or not. Not only that, this influx of interns begins to sound like companies are using them as more than interns. They are a potential source of the cheapest labor, after all.

The unemployment rate going this low has made the media intensely crazy, to the point of open propaganda. I wrote over a year ago about how even back then there really wasn’t much gray area any longer.

We are left with no other choice, then, the inescapable conclusion that is derived from the deranged nature of these extreme levels of labor statistics. They have to be faulty and therefore highly misleading. It is not much of a stretch to claim they have been this way for all this time, just not so obviously unfounded as they are right now.

But if you are completely committed to the unemployment rate as the only measure of economic success, the increasingly ridiculous emphasis on LABOR SHORTAGE!!!! stories makes sense. It is nothing more than pure desperation born of time. The labor market has supposedly been in a state of extreme imbalance for years now, so something must be going on!

That’s the second and largest problem about these anecdotes. They shouldn’t be necessary at all. If the unemployment rate was even close to a valid measure of the actual economic condition in the labor market, the data would be uniformly corroborating. That’s what would have filled out these stories instead of anecdotes. In the absence of data we are given stories that are blatantly reaching. 

Whether by price or quantity, the labor curves are so straightforward about what’s been going on for over a decade that denying them this way suggests intent. Companies cannot pay rising wages because the economy isn’t booming and hasn’t for a very, very long time. If there is a labor shortage, it is exclusively among the cheapest workers.

The latest monthly payroll headline (Establishment Survey) was +213k in June 2018, with some positive revisions to the changes for the two prior months (April and May). Two hundred thousand is always and everywhere classified as a good number, a good month for jobs. It isn’t.

If the economy were anything like the unemployment rate, the Establishment Survey would be averaging at least +320k equivalent in proportion to what had happened in the late nineties the last time the rate was so low. That means the labor market is growing at about two-thirds the pace of good. Two-thirds isn’t even adequate let alone booming.

The result is an explosion not in wages and income but stories about a labor shortage that doesn’t actually exist. Job growth over the last decade hasn’t even kept pace with the population. Since, however, so many millions of Americans have given up looking for work, they fall out of the labor force by rigid definition and the unemployment rate plummets making +213k seem like a good figure.

Going back to November 2007, the Civilian Non-Institutional Population, measure of the prospective labor pool, has expanded by 24.7 million. The labor force, by contrast, has grown by only 8.3 million. The narrative of the labor shortage and this boom hysteria is predicated on ignoring the 16.4 million “missing.” A small number of them are Boomers who have retired, others maybe their skills don’t match what’s largely available.

By and large, however, the vast majority of the rest should be working but are not. They aren’t even looking to work. The unemployment rate says they don’t matter; all the rest of the statistics, labor and beyond, shows that they do.

The anecdotes are therefore necessary in the total absence of data, to make it seem like those who are missing aren’t really being missed. The longer it goes this way, the more pressing and desperate the stories. If the unemployment turns out to be wrong, which would already have been the accepted verdict in more sane times, it matters for a lot more than just what the Wall Street Journal will have to find instead to fill its online pages.

It would mean the populist tide sweeping across the world is a legitimate rejection, primarily of the technocracy which has meant to fix all these problems and claims it has. For the status quo, this would be the absolute worst case. That’s what all this is really about, the Economics of politics. Common purpose and civility can only die under such dishonesty.

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