Mitchell's Musings

  • 01 Jun 2015 8:53 AM | Daniel J.B. Mitchell (Administrator)

    In past musings, I have noted problems in interpreting opinion polls taken about complex public policy issues in which the pollster has to explain to (and frame for) respondents what the issue is. Such polls tend to produce opinions about issues on which the respondent didn’t have a real opinion since the explanation (framing) was needed to produce answers.

    On the other hand, it is interesting to look at public sentiments on general circumstances in which respondents are likely to have knowledge or, at least, opinions. One such circumstance is the condition of the labor market. Another is personal economic well-being. Respondents are likely to have some perception of the labor market, either from personal experience or from observations based on family, friends, and what is happening at their own employer. Such opinions may or may not be accurate for the labor market as a whole, of course. Respondents are likely in addition to have knowledge of their own personal circumstances.

    California was harder hit by the Great Recession than average in the U.S., in part because the housing bubble/bust and shaky mortgage problem was disproportionately located in the state. Nonetheless, as the chart below indicates, the unemployment rate has been falling steadily and its latest reading on a seasonally adjusted basis was 6.3%. That level is higher than the U.S. average of 5.4% but during the recovery the California-U.S. gap has been narrowing. Say what you want, things are better now than they were and have been improving.

    The California Field Poll regularly asks respondents about their labor market and general economic perceptions and whether they are better off than a year before. So what did Californians think about the unemployment situation and the general economy in prior periods when the unemployment rate was about 6.3% and trending down?1 Such earlier periods turn out to be 1987 (the era of “Morning in America”), 1997 (the dot-com boom), and 2004 (the housing boom). What were respondents to the Field Poll saying then and now?

    Let’s start with the labor market. Respondents – registered voters - were asked “How serious a problem do you think unemployment is in California at this time?” Below are their answers:

    Very Serious Somewhat Serious Not Serious
    May 2015 39% 46% 14%
    Morning 1987 22 45 25
    Dot-com 1997 na na na
    Housing 2004 35 43 19

    Although we don’t have poll data for the corresponding dot-com year, it appears that respondents during the Morning in America period were more blasé about unemployment than are current respondents. Housing boom respondents were somewhere in between the two perceptions. The perception that the labor market has problems carries over into the characterization of the general economy. When asked to characterize the current state of the California economy, registered voters responded as shown below:

    Bad Times In-Between/ Not Sure Good Times
    May 2015 50% 17% 33%
    Morning 1987 22 24 51
    Dot-com 1997 42 23 33
    Housing 2004 53 22 24

    Again, the Morning in America respondents were less likely than those in subsequent corresponding period to perceive conditions as bad. Respondents in the later periods seem to have experienced a lag in recognizing the recovery. An interesting question is whether the respondents were reacting to their personal circumstances. Did they have a perception that their own situations had not improved? Registered voters were asked if their personal financial conditions or those of their family had improved (Better Off) or worsened (Worse Off) over the past twelve months.

    No       Change Worse Off
    May 2015 48% 25% 27%
    Morning 1987 49 26 25
    Dot-com 1997 42 31 27
    Housing 2004 41 32 27

    As the table indicates, a strong plurality of registered voters report an improvement at present, about the same proportions found during the Morning in America era. In fact, none of the periods show much difference from current perceptions of personal circumstances. So what accounts for the post-Morning perceptions of fewer problems in the labor market and in the general economy in California than we found now? The poll data themselves don’t answer that question so only a guess can be ventured. But it does appear that a structural shift occurred after the 1980s.

    There was indeed a structural shift around 1990 that corresponded to the end of the Cold War and thus the stimulus that had been provided to the California economy through federal military spending. As the chart below shows, whether measured by population or employment, California grew faster than the U.S. until the 1990s. [2] Thereafter, it grew in population only at around the U.S. national rate. And its employment level fell relative to the state’s population. Until the late 1980s, California population and employment more or less tracked each other. Now California’s population share is around 12% of the U.S. level but its employment share is around 11%. So state growth slowed with the end of the Cold War and there are also fewer workers in relative terms available to provide income support to the population.

    In short, the end of the era of super-normal Cold War growth seems to have left a permanent scar on the California psyche. You can point to falling unemployment. You can point to the current respite from the state budget crises that afflicted California during the first half of the 1990s and much of the period after 2000. But Californians – or at least those who are registered to vote – still have a sense that things are not what they should be. It’s no longer Morning in California and hasn’t been for a quarter of a century. Day is supposed to follow night but how long we will have to wait in California for a new dawn is unclear.

    [1] Data cited from the Field Poll can be found at

    [2] The chart is taken from the UCLA Anderson forecast of March 2015.

  • 25 May 2015 8:29 AM | Daniel J.B. Mitchell (Administrator)

    You have probably seen the headlines about the Los Angeles city council adopting a minimum wage ordinance that would raise the minimum in steps to $15/hour by 2020. [1] There has been the usual debate about the impact of the minimum, i.e., would it cause job loss or reduced hours or how well does it target low-income families as opposed to low-wage workers? Raising the wage in the City of Los Angeles is more complicated than doing it at the state or federal level. The City is part of a larger metropolitan area in Los Angeles County with over 80 other cities and unincorporated areas and so the impact of raising the wage in one city depends partly on what the other areas do.

    However, much of the attention has been focused on the political side. The standard view is that the minimum wage increase in LA is a sign of the increased influence of organized labor which backed the wage hike. And it comes in the context of other political events in California, not just in LA, in which union political influence has been at issue.

    It should be noted that the notion that all politics are local comes into play in such discussions. For example, there was recently a city council election in LA in which an “outsider” candidate up-ended another candidate said to be favored by the political establishment. But if you look at that race, you find that both the outsider and the insider had union support, albeit support from different unions. And the issue on which the outsider ran was a local concern about excessive development in the council district. [2]

    It is certainly the case that even when unions side with just one candidate, their pick does not automatically win. In the San Francisco Bay Area recently, two Democrats ran against each other as part of the state’s “top-2” non-partisan electoral system. [3] One of them, however, was the target of union enmity, apparently due to his earlier opposition to a transit strike and certain other activities. But he nonetheless won the race for a seat in the California state senate despite heavy union support for his opponent. The result has been debate on whether union influence is now on the wane in California. [4] A more accurate view, however, is that influence ebbs and flows and nothing is a sure thing in close political contests.

    Coming back to the LA area, but this time in the school district, there was a recent race for two seats on the district board. The teachers’ union backed a candidate in both races. One won and the other – opposed by a candidate linked to the charter school movement – lost. [5] As in the Bay Area case, the outcome led to political analyses concerning union influence in elections and whether the election signaled a rise or fall of such influence.

    It is stating the obvious to note that unions can influence elections through monetary contributions and direct get-out-the-vote actions. Apart from elections, unions can lobby and mobilize support for legislative actions at the local, state, and federal levels. But is there more than that which can be said and which the current political debates are missing?

    If we go back to the public policies that emerged from the Great Depression of the 1930s, there was a mix of public regulation combined with an assumed role that unions would play in the labor market. In essence, certain minimums and safety nets were established by law, e.g., the federal minimum wage, unemployment insurance, and Social Security. But it was widely assumed that workplace standards above the minimums would be set through collective bargaining once the federal government, through the Wagner Act of 1935, set the ground rules for union representation elections and for bargaining.

    As is well known with hindsight, unions certainly became more influential over time in setting workplace standards. But they never achieved significant penetration in some sectors of the economy and in the southern states. And after the 1950s, their position in the private sector began to erode, a process of decline that accelerated in the 1980s and continues. Public sector unionization, which grew in the 1960s and beyond, initially tended to mask the private decline. But nowadays, the image of a union worker is more likely to be a teacher or police officer than a factory operative.

    The upshot is that as the realities of the labor market depart more and more from the Great Depression-era assumptions underlying public policy, i.e., that unions would be the primary instrument of private employment regulation. A vacuum has developed. Unions regulate only a small fraction of private employment and so there is latent pressure for governmental regulation to fill the vacuum. I use the word “latent” because absent an organizing force, the ability to express those pressures is lacking.

    What has occurred in California is that although private sector union decline has followed the national trend, public sector union coverage has exceeded the national average. Private unions have only a limited direct influence in the workplace in California, but they are linked to public sector unions which provide a base for developing political influence. Indeed, one of the largest and most influential unions in California is the Service Employees International Union (SEIU), which has both public and private membership.

    In short, to some extent the bargaining role of unions and the political approach to labor market regulation are substitutes. As the former has declined in the private sector, there is latent pressure for the latter. And in California, in part because of union strength in the public sector, unions provide a mechanism for activating that latent pressure. In short, unions are necessary to activate the latent pressures for workplace regulation. But they tend to do so when they have limited influence in affecting conditions in private employment via bargaining. Overall strength but private weakness are the necessary and sufficient conditions for the kind of political activity seen in LA and California.

    At least in states which have a significant public sector union base, you are likely to see more emphasis on legislative labor market regulation. The line between what is a floor minimum standard and what is something more will tend to blur. For example, at the state level in California, there is a bill pending in the legislature at this writing requiring that fast-food restaurants give employees two weeks advance notice of their work schedules. [6] More broadly, there is a current push to create requirements for paid sick leave nationally. [7]

    Under the old Great Depression model, such conditions of work were expected to be left to collective bargaining. Now they find their way to legislatures and city councils. [8] Under the old model, there was an element of imitation in union-management settlements, i.e., features negotiated in one contract might be adopted in another. The same thing now tends to happen in regards to political regulation. All politics are local but they tend to spread from one locality to another.


    [2] Details of the race are at:;

    [3] Voters by ballot proposition created the top-2 system. There is first a primary in which all candidates, regardless of party, run against one another. The top-2 vote getters then oppose each other in the general election. Because the primary is non-partisan, the top-2 candidates may both be from the same political party.

    [4] For details, see;;;

    [5] For details, see and



    [8] At one point in the enactment of the Los Angeles minimum wage, there was also going to be some form of paid leave. It was dropped from the recently enacted law but may return as a supplement.

  • 18 May 2015 10:28 AM | Daniel J.B. Mitchell (Administrator)

    Two recent events suggest to me that there are certain lessons which – despite repeated experience – seem hard to learn. One such lesson or non-lesson involves a micro issue: employer-based incentive systems. The other involves a macro issue: international trade policy.

    During the past couple of weeks, there have been headlines about litigation against Wells Fargo Bank because employees engaged in marketing the bank’s services apparently opened accounts for customers which they hadn’t ordered.[1] But Wells Fargo is not unique in such activities. Readers may be familiar with the practice of “cramming,” the putting of charges on phone bills that weren’t ordered. [2]

    If you reward employees for undertaking certain actions – or penalize them if they don’t reach certain goals – such practices are inevitable. Recently, for example, school teachers in Atlanta were put on trial for faking student test scores (the results of which affected their careers).[3] From time to time, there are complaints involving traffic ticket quotas within police departments.[4] I recently attended a presentation on the use of forbidden drugs by athletes at the Olympics and other contests.[5] The list is endless.

    Usually, explicit incentive systems are promoted in human resources circles as “pay for performance.” The abstract concept seems so enticing. Employers have an “agency” problem, which in non-economics jargon terms comes down to saying they need to find ways to get the help to do what they want. So why not just pay the help on the basis of what they accomplish for the employer rather than just for time spent on the job? Align the interests of the help with those of the employer, etc., etc., etc., blah, blah, blah.

    You don’t have to be a true believer in rational economics to be attracted to the idea of pay for performance. Research in behavioral economics – the intersection of economics and psychology – in no way contradicts that idea that you can influence behavior through systems of reward and penalty. The key word, however, is “behavior.” Behavior can definitely be altered. But it is unlikely that any reward system can fully align interests of the agent and – to continue the jargon – the “principal,” i.e., the employer. You will induce a behavioral change by altering the surrounding set of rewards and penalties. Whether you get the desired behavior is entirely another issue.

    So when you read…

    “Wells Fargo officials said they make ethical conduct a priority and punish or fire employees who don't serve customers properly. They acknowledged the bank's strong focus on selling, but said it is intended to benefit customers by identifying their needs.”[6]

    …just take it as a symptom of a lesson that seems hard to learn. Pay for performance is a great slogan, but tough in practice to implement effectively. The fact is that you can never do it right, if by “right” you mean perfect. At best there are some arrangements that may work better than others and all systems will produce some degree of perverse behavior. But “may work better than others” is not a catchy slogan, particularly if you are in the business of trying to pitch a particular system.

    Trade Policy
    President Obama is trying to obtain “fast track” authority from Congress on an international trade agreement known as the Trans-Pacific Partnership (TPP) and is running into resistance, especially within his own party.[7] Under fast track, the Congress can’t amend the proposed deal but essentially can only accept or reject it as a whole. One of the sticking points in Congress is a demand that the deal include a mechanism for dealing with foreign currency manipulations. Such manipulations occur when exchange rates relative to the dollar are kept at levels that make foreign production costs artificially cheap. The result has been a chronic negative trade imbalance – about which past Mitchell’s Musings have repeatedly dealt - that ends up particularly hurting manufacturing in the U.S.

    It’s a Good Thing that the currency manipulation problem is being raised in the context of TPP although, as we have long noted, the problem much pre-dates TPP and has been an issue since at least the 1980s. However, as those folks now emphasizing the issue concede, in theory currency manipulation is already against the formal international rules that are supposed to govern trade. Their approach, however, is to improve the enforcement mechanisms.[8]

    The fact is, however, that negotiated bureaucratic enforcement mechanisms are ill-suited to deal with the issue. They are slow moving and a form of political litigation. A complaint – to be successful – must prove manipulation and inherently must single out countries doing it. But singling out villains is a problem since the same countries that would be singled out are those from which the U.S. wants cooperation in other matters. To be blunt, China would be named in any such complaint mechanism. But the U.S. wants cooperation from China in dealing with Iran and North Korea, to take two current examples. Japan would surely be named in a complaint. But the U.S. seeks Japanese cooperation in dealing with China.

    What would be the likely result were complaints made against offending nations? A probable outcome would be that the offender would make a relatively minor currency adjustment for some period and the result would be heralded as a sign that the problem would be addressed over time. Villains reluctantly named, complaints, and assurances of corrections over time has in fact been the history of the currency manipulation issue. It hasn’t fixed the problem in the past. New bureaucratic procedures are not likely to make much difference in the future.

    We have noted in past musings – in fact a musing as recent as April 27 - that there is a remedy that was proposed in the 1980s and that involves no tribunals and no villains. It relies instead on a market mechanism.[9] It was proposed by financier Warren Buffett in an op ed in the Washington Post, received its 15 minutes of fame, and then was promptly forgotten.[10] In essence, Buffett’s proposal was a variation on what we now call the cap-and-trade approach that is used for air pollution control purposes in order to substitute a market mechanism for bureaucratic regulations and procedures.

    Under the Buffett plan, U.S. exporters would receive vouchers allowing imports of the same value as their exports. They could exercise them directly (for imports) or sell them in the market to other importers. Imports could only occur with the requisite vouchers. The result would be balanced trade, i.e., value of U.S. exports = value of U.S. imports with beneficial effects on U.S. manufacturing in particular, both on the export side and for those sectors facing import competition. The de facto exchange rate – the combination of the actual exchange rate and the cost of the voucher – would be the exchange rate consistent with a zero trade balance. And, yes, there would be some administrative costs and complications. But there would be no villains, no tribunals, and no token adjustments to smooth international relationships.

    What is the actual prospect of our learning lessons from the history of the currency manipulation issue and adopting some variant of the Buffett plan? The odds, unfortunately, are about the same as the prospect that there won’t be periodic waves of excitement in the future over the concept of pay for performance. The only thing we learn from history is… well, you know the rest.

 Full disclosure: The author is a Wells Fargo customer and has not had the problem described in the article.










 Warren E. Buffett, “How to Solve Our Trade Mess Without Ruining Our Economy,” May 3, 1987, Washington Post, page B1.
  • 09 May 2015 10:39 AM | Daniel J.B. Mitchell (Administrator)

    Once upon a time, you could write a letter to the editor of a newspaper and, after a review process, it might be published. Most such letters, of course, ended up in the waste basket and never appeared in print. But when the web came along, newspapers started allowing comments to be posted on articles and what appeared in those comments was to put it politely – unfiltered. While some comments were thoughtful, what often appeared (and still often does appear) were (are) rants exhibiting poor grammar and spelling and a sense of paranoia.

    Some newspapers tried to provide a level of filtering in response. Recently, for example, the Sacramento Bee has developed a system which attempts to deal with the rant problem. The Bee’s guidelines for commenting are an attempt to reduce offensive ranting without having to employ editors to pre-screen every comment.[1] But there is one element in the guidelines that illustrates the problem: “We do not screen comments before they post.” So even if offensive comments are deleted eventually, they may appear on the Bee website for at least a time.

    There are similar issues regarding other popular social media sites such as Twitter, YouTube, or Facebook. Eventually, items that don’t meet whatever guidelines those sites have will be (or might be) deleted. But they will be posted for a period before the deletion occurs and persistent commenters may simply repost them repeatedly. Beyond reposting, web users can also create their own websites and blogs where even token filtering is absent. In short, the world of communication – while more accessible than ever before – has become a nasty place. Read what is there at your own risk.

    While the norms of the outside world have become nastier, there seems to have been an opposing reaction on university campuses. Universities have increasingly attempted to prevent “micro-aggressions” that might offend someone at a time when the norms of the Internet rarely block far more insensitive macro-aggressions. You may recall the brouhaha in the past year or so when there was agitation for inclusion of “trigger warnings” on university syllabi just in case there were topics or readings that might offend.

    More controversially, various commencement and other invited speakers have been effectively barred from campuses because of complaints that their views might be objectionable to somebody. These complaints came with threats of disruption. At a time when anyone could increasingly say anything on the Internet, in the university anyone could be a de facto censor.

    All around the university there are external web services that carry far more offensive messages than anything likely to be found on a college syllabus or in a graduation speech. Indeed, some of these web services are specifically directed at universities – particularly students - and their very appeal is that they don’t do much filtering and allow anonymous commentary. For example, there is a popular service called “Yik Yak” in which students can say just about anything using made-up names. As a result, Yik Yak tends to feature sexual references, racial and ethnic references, and whatever else flickers through the heads of young adults who are bored with doing their homework. And, of course, there are various outside professor-rating services with even less filtering than Yelp.

    Note that when everyone is speaking loudly, the only way to be heard is to shout. Presumably, that principle is why restaurants have become progressively noisier. Similarly, if everyone is speaking offensively, the only way to be noticed is to be yet more offensive. University administrators can try to encourage everyone to play nice when untoward behavior strikes – a recent occurrence on my own UCLA campus.[2] But the ability of university officials to change the norms that are imported from the outside is limited.

    Indeed, the recent UCLA event is in fact a repeat of an earlier episode four years ago.[3] But there one big difference; in the earlier case the offender didn’t act anonymously and ended up having to withdraw from the university. So the lesson really learned was that if you want to deliver an offensive missive, you should take care not to put your real name on it. Behave anonymously as is so often the case on the Internet.

    Universities tend to display their problems publically so that the tensions that arise between outside norms and inside exhortations not to follow those outside norms receive publicity. However, students who are exposed to such conflicts will eventually graduate and go into the workplace where issues of norms and acceptable behaviors are handled more privately. Workplaces have rules about behavior on the job (and sometimes off the job) that do not accord with the anything-goes approach of the Internet.

    A key difference between private workplaces and universities is that the former don’t necessarily feature all of the due process procedures and other legal protections that university students are provided. And private sector employees seldom have the equivalent of the tenure protections that university faculty members enjoy. As more and more students flow from colleges and universities into employment, it will be interesting to see how the widening gap between internal workplace norms and external Internet norms plays out.


    [2] In the UCLA episode, someone anonymously pasted stickers with offensive messages in university buildings. The result was a plea in the student newspaper from a senior administrator to avoid such behavior [see] which was followed by an email from the chancellor saying that “regardless of our politics or backgrounds, we are at our best when we acknowledge the humanity of others, appreciate diverse viewpoints and respond with empathy.”


  • 04 May 2015 12:36 PM | Daniel J.B. Mitchell (Administrator)

    Back in the day, economists used to debate about the “Phillips Curve,” essentially a prediction that nominal wages would rise more quickly as the unemployment rate fell. There were debates, starting in the late 1960s, over the stability of the relationship and about its lack of theoretical underpinnings. But in some form or other, early empirical forecasting models contained a version of the relationship. It was one of those things that, to paraphrase former Fed chair Ben Bernanke in another context, worked in practice even if not in theory. Today’s forecasters still have some kind of Phillips curve – perhaps much embellished – in their modeling apparatus.

    In the years after the Great Recession, however, there developed doubt as to whether we would see a rise in nominal wage growth despite the fall in the unemployment rate. It was noted that other elements of labor market activity measurement, notably the participation rate, seemed to suggest that there was a good deal of hidden or discouraged unemployment. From that perspective, the official unemployment rate was misleadingly low. Even though the official rate had fallen below 6% during 2014, perhaps the labor market wasn’t as tight as that number would suggest.
    Official Unemployment Rate, Seasonally Adjusted

    However, when we now look back over the last year or so, the Phillips Curve seems to be in operation. The chart below shows the 12-month change in the Employment Cost Index for the private sector on a total compensation (wages and benefits) basis.1 Total annual compensation growth settled into a 2 percentage-ish range until 2014. But as of early 2015, it was getting up toward 3 percent.
    Employment Cost Index, Private Sector, Total Compensation: 12-Month Percent Change

    Sometimes, on a short-term basis, benefit costs within the Employment Cost Index can exhibit erratic behavior. In theory, benefit cost growth should largely be offset by reduced wage growth, but in the short-term at least that result may not occur. Nonetheless, on a wage-only basis, more or less the same story emerges as with total comp, as can be seen in the next chart.

    Employment Cost Index, Private Sector, Wage-Only: 12-Month Change

    Of course, an average pay increase is just that – an average within a distribution. Some employees receive more and some less than the average. At present, some of the above-average increase seems to be concentrated in employees receiving pay in the form of incentives. And the charts above refer just to the private sector. Pay in the public sector tends to react more sluggishly for a variety of reasons including bureaucratic inertia. Also significant was that fact that the state and local sector had a prolonged budget crisis in the aftermath of the Great Recession resulting in layoffs and limited pay gains.

    Although the Phillips Curve pay prediction is typically expressed in nominal terms, the recent jump in nominal terms was also mirrored in real (inflation-adjusted) terms. The official Consumer Price Index (CPI-U) growth rate on a 12-month basis ending March 2015 (the latest date available at this writing) was actually slightly negative due to the downturn in oil prices. However, the “core” CPI-U (excluding volatile food and energy) has been running below 2% for the past three years. So, at least as officially measured, pay purchasing power has increased as nominal pay has risen.

    What about macro policy? Does the rise in pay mean the Federal Reserve should start raising interest rates? Once upon a time, as we have noted in prior musings, there was much worrying among macroeconomists about “wage-push” inflation. But with unions in the private sector now representing only a small minority of the workforce, the notion of some kind of autonomous push of wages independent from a more general inflation process seems farfetched. That approach is old economics.

    Also under the label old economics has been the continuous warning from monetarists that due to Fed credit expansion in response to the Great Recession, rapid inflation is an imminent threat. But our favorite measure, the spread between inflation-adjusted Treasury securities and conventional (unadjusted) securities – while sometimes volatile – has never been consistent with that forecast. It remains consistent with a multiyear inflation prediction of around 2% per annum as the chart below indicates. [2]

    Core CPI-U inflation is currently below the 2% per annum rate often said to be the Fed’s target. Watchful waiting would seem more prudent as a course of action than an over-hasty reaction to something that has not yet happened and, at least as seen by financial markets, is not expected to happen.

    [1] The Bureau of Labor Statistics released the latest data for the Employment Cost Index (through March 2015) on April 30, 2015.

    [2] The chart is derived from the St. Louis Federal Reserve’s FRED database.

  • 27 Apr 2015 8:39 AM | Daniel J.B. Mitchell (Administrator)

    American’s tend to believe that all problems have solutions – if only folks would just get together and work things out. Thus, they are annoyed when ideological differences cause gridlock in Congress. Americans tend to think simplistically about the Middle East. Why can’t the people there just sit down and settle their conflicts? But there is one problem which seems to escape the notion that all-problems-have-solutions and that is exchange rates. There are calls from time to time for someone to do something about exchange rate manipulation but the calls include no real solutions for the U.S. Someone should do something – but what? [1]

    As we have pointed out many times in prior musings, the U.S. has become the world’s champion debtor as the result of continuous net export deficits. The effect of such deficits falls disproportionately on U.S. manufacturing which was once the provider of those good jobs that politicians, policy wonks, and just about everyone else pine for when such topics as income inequality are raised. So if you want to do something for manufacturing, before you start proposing such remedies as more community college, you would want to focus on the trade side.

    First, let’s put the issue of manufacturing in perspective. Manufacturing as a proportion of total economic activity has been in decline since the end of World War II. Although we keep changing the measurement of that sector via changes in industrial classification systems, manufacturing in relative terms compared to overall GDP is about one third of what it was at that time. [2]
    - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
    Manufacturing as Percent of GDP
    1950 31% 1960 29% 1970 25%
    1980 23% 1990 18% 2000 15%
    2010 11% 2014 11%
    - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
    Given its rate of shrinkage, it is unlikely that any “remedy” – trade deals, community colleges – would restore manufacturing to its 1950s’ importance. On the other hand, since the sector is only 11% of total economic activity, even a modest trade-related boost could have a notable impact on the manufacturing sector.

    Exchange rates can change the relative costs of production between countries. The Federal Reserve has an index of the U.S. dollar exchange rate compared to a large array of other countries’ currencies, all adjusted for inflation. Attempts by the U.S. to retain a fixed exchange rate system relative to other currencies ended in the early 1970s. Since that time, the dollar has been subjected to substantial swings in value. It’s hard to look at the chart below and interpret these swings as having some “fundamental” causes. How much can “fundamentals” change in the course of a few years? In fact, the history suggests both speculative volatility (a characteristic of other financial markets) and opportunities for countries to set their exchange rates at arbitrary levels (including arbitrarily low levels).

    Although countries are not supposed to “manipulate” their exchange rates, it is hard to define that concept in practical terms. Given the kind of volatility exhibited in exchange markets, surely countries have the right to intervene in currency markets to try to smooth out the swings. And if they hold their exchange rates at levels that generate net export surpluses (so that official reserves accumulate), who is to say what the appropriate reserve levels should be? In short, unlike negotiations over tariffs and other trade barriers, no one has come up with a workable way of regulating exchange rate manipulation.

    However, because exchange rate manipulation cannot be regulated easily through international negotiations and trade treaties, that doesn’t mean there are no solutions. It just means that the solution won’t be found in trade treaties and negotiations. We have noted in prior musings that a solution was suggested many years ago and was ignored at that time and after. Below we will (again) repeat it for the record. But let’s first go back to U.S. manufacturing and the net export deficit.

    The chart below shows the U.S. net export surplus or deficit from the end of World War II through 2014. Immediately after the War, the U.S. had large surpluses reflecting both foreign aid to war-damaged countries and attempts by various countries to hold their currency values relative to the dollar at unsustainably high levels. But by the 1950s and until the end of fixed exchange rates in the early 1970s, the U.S. ran modest trade surpluses – typically in the range of 0-1% of GDP. [3] But once the fixed exchange regime ended, the U.S. ran chronic deficits. These deficits fluctuated in amount but at times ran over 5% of GDP. At present, they seem to have stabilized at around 3% of GDP.

    Suppose the dollar were now to be maintained at an exchange rate consistent with a zero deficit. While that wouldn’t begin to pay back the U.S. debt to the world, it would stop adding to the debt. Trade treaties, for reasons already explained, are unlikely to produce such a result. Negotiations with particular countries – China and Japan would be prime candidates – would also be unlikely to produce changes in behavior and would lead to charges of China-bashing or Japan-bashing. The U.S. shrinks from such charges officially because it wants cooperation from these countries in other matters of foreign policy. Politicians don’t necessarily shrink from such bashing – indeed they may be attracted to it around election time – but, as noted, their bashing doesn’t come with solutions.

    If the exchange rate were reset so that net exports were zero (“balanced” trade), perhaps half of the increased activity (more U.S. exports; more U.S.-made import substitutes) would be in manufacturing. At present, that would be about 1.5% of GDP (half of 3%). With manufacturing at about a tenth of total activity, the employment gains in that sector would be about 15%. No trade treaty or negotiation is likely to produce such an effect. Similarly, long term remedies such as more technical training in community college seem unlikely to produce that impact.

    But wait! What could bring about such an exchange rate effect and do it without singling out any particular country for bashing. As we have noted many times, back in 1987 (when Japan was seen as THE trade villain), financier Warren Buffett wrote an op ed in the Washington Post outlining a specific plan.4 It was basically a cap-and-trade plan for trade similar to the plans more commonly applied to air pollutants. Under the Buffet plan, U.S. exporters would receive a $1 voucher for each $1 of their exports of goods and services. The voucher would be a license to import $1 of goods and services. The voucher could be exercised directly by the exporter or sold in an open market to some importer. By definition under the system, value of exports = value of imports. The market cost of the voucher plus the prevailing exchange rate would be the equivalent of the exchange consistent with net exports = zero.

    The Buffett cap-and-trade exchange rate plan singles out no country or countries. There is no bashing. There is no negotiating with any particular country about its exchange rate relative to the U.S. dollar. It is not protectionist. It simply achieves the result of the exchange rate consistent with net exports = zero. Under the Buffett plan, U.S. debt to the world stops rising. [5]

    Would there be administrative problems? Any system has costs. There would need to be verification of export value in issuing vouchers and verification of import value when they were exercised. We do have customs inspectors in place but there would need to be more of them to implement the system. Perhaps one might oppose the Buffett plan on the basis of administrative cost but to do so, one would have first to recognize and evaluation the possibility of the plan.

    How can those commentators who lament exchange rate manipulation without even mentioning the Buffett plan be interpreted? Do they just want to pose a problem without offering any solution? Are they unaware of a plan that would provide a solution to the problem they pose even though the plan was published in a prominent daily newspaper and written by a well-known financier? You can chose between those two answers. I can’t think of any others.

    [1] For three examples, see

    [2] The chart uses the SIC code for 1972 through 1980, the SIC code for 1987 for 1990 and 2000 and the NAICS 2002 for 2010 and 2014. The two SICs showed no appreciable difference in 1987. NAICS measurement showed a slightly smaller manufacturing sector in 2000 compared with SIC.

    [3] The ongoing “balance of payments problem” of the U.S. before the end of fixed exchange rates had to do with the financial side of the accounts. Low interest rates in the U.S. (maintained for domestic reasons) encouraged borrowing in the U.S. by foreigners and U.S. direct investment abroad. In effect, that accumulation of claims on the world by the U.S. was financed by increased dollar reserves held by foreign central banks under the fixed exchange rate system that had been established by the 1944 Bretton Woods agreement.

    [4] Warren E. Buffett, “How to Solve Our Trade Mess Without Ruining Our Economy,” May 3, 1987, page B1.

    [5] The voucher entitlement could be set so that the U.S. ran a surplus and began paying off its debt. For example, each $1 of exports could produce an entitlement equal to, say, 90 cents worth of imports.

  • 20 Apr 2015 8:24 AM | Daniel J.B. Mitchell (Administrator)

    The Age Discrimination in Employment Act, as amended, generally prohibits mandatory retirement ages except in a few occupations such as airline pilots. Yet at one time, such practices were commonplace with the mandatory age often set at 65 or 70. For tenured university faculty, mandatory retirement was permitted later than for other occupations, but it, too, was ended in 1993. New York Senator Daniel Patrick Moynihan – who had come out of the university setting with a PhD - expressed concerns about ending mandatory retirement in academia:

    I must note, however, that I am troubled by the application of this change to the unique situation of tenured faculty members at colleges and universities. In order for these institutions to remain effective centers of teaching and scholarship, they must have a balance of old and new faculty. Hence, universities must ensure that older faculty members retire at an appropriate age, not simply to "make room" for younger faculty, but to maintain a contemporary, innovative and creative atmosphere where students can obtain the fullest education. . .[1]

    However, despite Moynihan’s concerns, Congressional policy was to delay the end of mandatory retirement for tenured faculty while a study was being prepared but then – based on the study – ended authority for universities to impose it.

    Starting in the 1970s, the labor economics literature began looking at practices such as mandatory retirement ages under the rubric of the “new economics of personnel.” Mandatory retirement was seen as a component of “implicit contracting” in the labor market. The rationale was that career employees – seen as having long-term relationships with employers – worked for less than their value early in their careers in exchange for an overpayment later. The early period was seen as a form of posting a bond for good performance, given imperfect information at the time of hiring and as an incentive against “shirking.” Mandatory retirement was seen as a way of terminating the overpayment period.

    Similarly, defined-benefit pensions were depicted as having a similar function (by making it advantageous to retire after a given age). Under a defined-benefit pension plan, the monthly annuity is typically a function of age, length of service, and the level of recent (pre-retirement) earnings. The expected value of the future stream of pension payments begins to fall beyond a certain age since each year of continued work means one year less of pension receipt. Eventually, someone who continued working would be effectively working for nothing due to the continued pension loss which has to be subtracted from the pay expected from continuing to work.

    All of this history and economics literature came to mind recently when I participated as a panelist on a program at UCLA developed for faculty who were thinking of retiring but who were uncertain as to whether to do so. You can hear my presentation at the program at One thing to note about UCLA (as part of the entire University of California system) is that it has a defined-benefit pension. In that respect, it is unlike most universities that have defined-contribution plans (such as TIAA-CREF) which provide no particular incentive to retire. My impression – based on anecdotal evidence – is that, as a result, there has been less of an issue regarding tenured faculty retirement decisions at UCLA than has developed at many other universities.

    Nonetheless, some elderly faculty do have a problem in making the retirement decision, even at UCLA. One factor is that the defined-benefit incentive to retire – while self-evident to economists – is not necessarily fully appreciated by others. (Having understandable incentives is always an issue in designing personnel systems and retirement programs are no exception.) Thus, some faculty may think that the point of “working of nothing” arrives only when the pension is equal to the rate of final pay, which at UCLA occurs only after 40 years of credited service.[2] Or they may think that the optimum decision is to wait until you are working for nothing.

    It was clear from the program at which I spoke that there is a subset of folks who have a problem in letting go of their long-time activities despite economic incentives to do so. What about folks in sectors outside academia? We do know that labor-force participation rates for those 65 years and over have been increasing since the late 1990s, as the charts below show. Participation rates fell from the end of World War II until they leveled out in the 1980s (particularly for men). Clearly, there were various underlying factors in this pattern, notably the availability of Social Security, private pensions, and improved elder health.[3]


    Now it’s easy to say that the experience of university faculty is vastly different from those of other employees in other sectors and occupations. Other employees may not be committed to their careers to the same extent as faculty and they rarely have anything like tenure. They may have work histories in physically demanding occupations that produce health issues which make job continuance difficult beyond a given age. Nonetheless, for whatever reasons, the overall participation rates for those 65 and over throughout the labor market have been rising as a long-term trend.

    Note, too, that the stories that were especially in vogue about stock market losses in 401k plans due to the Great Recession don’t fit the timing of the trend. Such stories tied continuation of working to depleted retirement accounts. The rise in participation for older women seems to start in the late 1980s. For older men, it seems to occur in early the 2000s, halting – not beginning - in the Great Recession.

    When we move to a still older age bracket – 75 years and over – the same pattern emerges, as the charts below illustrate. The male participation rate heads up after the late 1990s; the female rate goes up from the late 1980s.4 Using the older age cutoff likely filters out individuals with physically difficult job histories. But it can be assumed that most remaining workforce participants still are not tenured faculty.



    In short, the faculty reluctance-to-retire phenomenon may be part of a larger set of forces that are not unique to academia. Economic incentive devices such as defined-benefit pensions may mitigate the phenomenon for many individuals.[5] But they don’t entirely eliminate it. Thus, universities may need to consider other types of programs - such as phased retirement - to encourage turnover.


    [2] The system multiplies an age factor of 2.5 times years of service and then multiplies that product by what for most faculty is final base pay for the last three years. (The age factor rises with age but peaks at 2.5.) For many faculty, it might be noted, the base rate of pay on which the pension is calculated excludes pay beyond the official salary rate. Such extra pay may be a considerable fraction of total pay – especially in medicine. Pay received during the summer months for teaching, research, or other reasons is also excluded from the pension to avoid “spiking.” So, in such cases, i.e., cases in which non-base pay is significant, the idea that you are working for nothing only if your pension equals your pay means that such a condition is perceived never to arrive.

    [3] Data for the charts are from the U.S. Bureau of Labor Statistics website. The charts were created on the website.

    [4] Data from U.S. Bureau of Labor Statistics for ages 75 and over are not available before 1987.

    [5] Universities with defined-contribution pension systems sometimes create ad hoc incentives – essentially retirement bonuses – from time to time. But such practices can have perverse effects; faculty may delay retirement waiting for the next special deal to come around.

  • 13 Apr 2015 8:47 AM | Daniel J.B. Mitchell (Administrator)
    My UCLA office is located in a building constructed in the 1960s that contains four elevators. At least one elevator seems always to be out of service. Although the building now houses the School of Public Affairs, when I first came to UCLA in 1968, it was the home of the business school (where I had my office, too). Even then, the elevators never seemed to behave properly.

    Elevator misbehavior gave rise to a kind of mythology. Some in the building believed that if you jumped up and down in an elevator that seemed not to want to go, it would start to move. Others believed that some sequence of button pushing would do the trick. I would sometimes suggest to annoyed riders that if the authorities would only feed the donkey pulling the rope better, service would improve. But that suggestion was always taken as a joke. Actually, it was as good a story as any of the others. There is a human need, apparently, to have explanations for events and situations, even if there aren’t any explanations.

    I was reminded of that phenomenon in reading a news account interpreting the April 7 release by the U.S. Bureau of Labor Statistics JOLTS (Job Openings and Labor Turnover Survey) data through February:[1]

    A new Labor Department report Tuesday showed that job openings surged 3.4 percent to 5.1 million in February — a 14-year high. That’s a clear sign that companies are willing to boost their staffs… To be sure, there were some negative signs in Tuesday’s report. Total hiring slipped 1.6 percent in February to 4.9 million, the second straight decline. At the same time, layoffs fell sharply. The declines in hiring and layoffs suggest that employers were cautious in the face of a faltering economy but weren’t spooked enough to cut jobs...[2]

    When you look at the actual media release, it’s just a couple of charts, data tables, and text describing the data. There is nothing in the release itself about caution or being insufficiently spooked. In any case, if employers were being cautious, perhaps they would hire at a lower rate. But why would they also reduce separations? Wouldn’t they want to let workers leave their employment voluntarily who wanted to leave if there were reasons for caution about a slowing economy? That is, might they not cut back on efforts at worker retention out of caution? And might they not want to step up their involuntary layoffs?

    Perhaps, more pointedly, we are talking about a one-month change in the various rates being tracked and discussed. And the data we are talking about are seasonally-adjusted. So there could be any number of explanations for the one-month changes. Perhaps the seasonal factor – which is based on the past history of seasonality – was wrong for the particular weather that occurred in January-February 2015? Maybe the especially bad weather this winter led to delayed decision making on both separations and hiring. Or maybe the underlying (unadjusted) data were simply affected by some statistical noise since we are talking about figures from a sample survey. The release footnotes the latest data as “preliminary” so they might well be revised. In short, maybe there is no story here to tell at all.

    Let’s put in perspective the data that the news account describes. The job openings rate (job vacancies rate) during January-to-February went from 3.3% to 3.4%.[3] I am not sure that move (if it was more than noise) qualifies as a “surge.” The “slippage” in hiring was in fact so miniscule that it left the hiring rate unchanged at 3.5%.[4] For separations, the supposed slippage was a drop from 3.4% to 3.3%.[5]

    If you are looking for a “story” on the job openings rate, you need to focus on long-term trends and not one-month blips. The chart below tells you that story, but it isn’t one that you didn’t already know. Labor markets are generally recovering since the bottom of the Great Recession in 2009. Maybe that isn’t news at all. But as they say, no news is good news. Would you rather have a reverse story of no recovery?

    Job Openings Rate, seasonally adjusted, 2005-2015


    [3] The job openings rate is computed by dividing the number of job openings by the sum of employment and job openings and multiplying that quotient by 100. (Description taken directly from release.)
    [4] The hires rate is computed by dividing the number of hires by employment and multiplying that quotient by 100.
    [5] The separations rate is computed by dividing the number of separations by employment and multiplying that quotient by 100.

    Source: U.S. Bureau of Labor Statistics.

  • 06 Apr 2015 1:17 PM | Daniel J.B. Mitchell (Administrator)

    Statistics are in principle “neutral.” They are just facts. In theory, it’s up to the user of the statistics to interpret the numbers. But nice as that theory is, it is not quite true. How you display statistics or which statistics you choose to display can influence users’ perceptions. To take an example, consider the monthly “Employment Situation” release of the U.S. Bureau of Labor Statistics shown below. There is much information in the body of the release. But someone has determined for you that the two most important pieces of data you want to see first are the official unemployment rate and its trend and the monthly change in non-farm payroll employment over the past two years. In effect, those two items are the cover story to the rest of the information. They are often the headline stories in the news media.

    As noted, it’s not that those two items are the only pieces of information contained within the release. But they are prominently displayed. For example, someone might alternatively have chosen average weekly hours or the median duration of unemployment to display, data that are also part of the release. There are alternative unemployment rates in the release based on definitions differently from those used for the official rate. But you have to know about these other data series and look for them.

    How you display data has long been known to be important. When I taught a course in labor markets and we arrived at the unit on productivity, I would note that in a broad context, productivity can refer to management and effective decision making. Your decision making is in part a function of the facts at hand. In that context, I would bring up the name of Florence Nightingale who at least some students would identify as “the first nurse.” Less known about her is her use of statistics and her presentation of statistics to persuade the powers-that-be in Britain on appropriate treatment of wounded and ill Crimean War soldiers. Nightingale developed a circular bar chart form of display to make her points.[1] Indeed, she said that “To understand God's thoughts we must study statistics, for these are the measure of his purpose.”[2] She didn’t add that the choice of which statistics to study is a human choice.

    The display of data may not necessarily tell you about God’s thoughts, but they do tell you something about the thoughts of whoever arranged the display. Which brings me to the Mitchell’s Musings of March 23, 2015.[3] In a footnote in that musing, I noted that the St. Louis Fed’s database system “Fred” indicated that a statistical series on the holdings of U.S. Treasury securities holdings of foreign official monetary institutions (central banks and similar institutions) had been discontinued.[4] This series, which has been produced by the Bureau of Economic Analysis (BEA) in the Dept. of Commerce, may seem obscure to you. But it previously could be found on Table 1 of the quarterly “balance of payments” releases of the BEA. Putting it on Table 1 – and therefore among the first information you see - was a decision someone had made that the information was important. I agree with whoever that was that the series was important, and still is, but let me delay getting into why.

    When you go to that release now, the series has indeed vanished from Table 1 as can be seen on the latest posting.[5] A year earlier, the same release had the series.[6] So I emailed BEA to find out why the change was made. The response I got back was essentially in two parts. Basically, there was an effort by BEA to simplify the release and put it in a format similar to that said to be used by other countries. Second, it was noted that because users might want to see the information that had previously been displayed, you could go on the web and find it on another table (a table not included in, or mentioned in the latest release). So the data are available (FRED was wrong), but surely not displayed in a way that Florence Nightingale would have used if she thought there was importance in the series. (You go to and then click on “Addendum Table 9.1”)

    OK. Who cares? Why is the series important? To answer that question, you have to know something about the international monetary system. From the end of World War II and until the early 1970s, the U.S. and other major currencies used a fixed exchange rate system. All countries defined the price of their currencies relative to the U.S. dollar. To make the market price the same as the official price, central banks committed themselves to buy and sell their currencies in unlimited amounts at that dollar exchange rate. The system suffered a major shock in 1971 and essentially fell apart in 1973. Thereafter, with some exceptions, the U.S. took a relatively passive position with regard to the dollar. However, other countries in varying degrees bought and sold their currencies to achieve a target exchange rate with the dollar, or at least to stay within an exchange rate range around the dollar.

    When we look at the change in U.S. dollar holdings of foreign central banks and official monetary institutions, particularly U.S. Treasury securities, we can determine whether they were acquiring more dollars (a “capital inflow” aimed essentially at preventing their currencies from rising in value relative to the dollar) or doing the opposite (a “capital outflow”). The series on the change in foreign official dollar holdings (flow data) is paralleled by a series showing the absolute amount of the holdings at the end of each quarter (stock data). As in the case of the flow data, BEA no longer includes this information on its basic table and leaves it to the user to find it in a supplementary table.[7]

    The question of exchange rates and what other countries are doing to control the movement of their exchange rates relative to the dollar is crucial to the debate over the unprecedented growth of U.S. liabilities to the world, the imbalance of trade (imports far in excess of exports), and the shrinkage of American manufacturing due to that imbalance. A decision to reduce the prominence of a data series that relates to that debate (whether deliberate or not) is equivalent to a decision that the debate over those issues isn’t of much importance. Florence Nightingale would have understood the significance of the change in data presentation. Whether the decision maker at BEA understood is unknown.

    [6] Go to line 58 and the more comprehensive line 56 of Table 1.
    [7] You go to and then click on Table 3.1.

  • 30 Mar 2015 11:50 AM | Daniel J.B. Mitchell (Administrator)

    The Public Policy Institute of California (PPIC) regularly publishes state opinion poll data on political, economic, and social issues. Among the questions included as part of the survey is an open-ended inquiry in which respondents are asked about what they think is the most important issue facing the state:

    “Thinking about the state as a whole, what do you think is the most important issue facing people in California today?”

    Respondents don’t choose from a menu of issues. Rather their responses are coded into various categories by the interviewer. (So far, the inelegant use of participles by pollsters has not been among the coded top issues reported to be facing the state!) The table below summarizes the responses of the March 2015 poll and the trend in responses going back to 2007.
    - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
    California Unemployment Rate and Percentage of Adults in PPIC Poll Listing Jobs/Economy or Some Other Issue as the First or Second Most Important Issue Facing the State
    - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

       Unemployment [a]  Jobs/Economy
    Second Most Important Issue [b]
     5.4%  13%  immigration/illegal immigration 19%
    March 2008  7.3%  35%  education/schools  12%
    March 2009
     11.2%  58%  state budget/deficit/taxes  13%
    March 2010  12.2%  57%  education/schools  12%
    March 2011
     11.7%  53%  state budget/deficit/taxes  14%
    10.4%  52%  education/schools  8%
    March 2013
     8.9%  45%  education/schools  11%
    March 2014
     7.5%  32%  Water/drought  15%
    March 2015
     {6.9% [c]}
     24%  Water/drought  23%

    - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
    [a] Annual unemployment rate except 2015.
    [b] In 2007, jobs/economy was the second most cited issue; immigration/illegal immigration was first.
    [c] February 2015, preliminary, seasonally adjusted.
    - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
    As might be expected, the Great Recession and its aftermath had a major effect on the responses given by those surveyed to the poll. The rise in unemployment during the Great Recession and its high level during the subsequent recovery made jobs/economy the number one response for most of the period. Before the Great Recession took hold, however, another issue – immigration – was the lead concern and the percentage citing jobs/economy was low (number 2). In the latest survey, jobs/economy is essentially tied for first with the drought California is experiencing.1 The level of concern over jobs/economy shown on the table has been roughly cut in half from the peak. Various water districts are currently imposing limits on water use and raising the price of water. Scary headlines about the drought have appeared. So it’s not surprising that as jobs/economy has faded in perceived importance, the water/drought issue has risen in relative prominence.

    As noted, jobs/economy was in second place just prior to the Great Recession and before the unemployment rate shot up. At that time, drought was not an issue. However, the immigration issue had simmered somewhat during the gubernatorial election year of 2006 which may account for its showing in the early 2007 poll. Within California in the most recent survey, there is regional variation. Jobs/economy receives the most attention in the higher unemployment areas of the state. Thus, it is seen as more important in the Inland Empire, an area generally east of Los Angeles which was a center of flaky mortgages, foreclosures, and has featured the municipal bankruptcy of San Bernardino. In contrast, jobs/economy is a low concern in the San Francisco area which is now in the midst of a tech boom. An exception to the unemployment effect is the Central Valley which has high unemployment but also an agricultural base and therefore has heavy water dependence. Water and jobs/economy are tied together in that region.

    Percentage of California Adults in March 2015 PPIC Poll Listing Jobs/Economy or Water/Drought as the First or Second Most Important Issue Facing the State
      - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

     All Adults  24%  23%
     Central Valley  17%  32%
     San Francisco Bay Area  15%  32%
     Los Angeles, Long Beach, Anaheim  29%  13%
     Orange, San Diego  27%  22%
     Inland Empire  35%  15%

    - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
    Despite the recovery, California, as has the rest of the U.S., shows signs of labor-market distress that go beyond the basic unemployment rate. For example, the labor force participation rate has fallen in the state, as it has in the country as a whole. The drop in participation seems particularly marked among younger age groups. The current overall participation rate for the state (62.4%) is below the level at the pre-Great Recession peak of the last business cycle (65.7%) and below the level at the trough date of the Great Recession (65.3%). But while the news media have carried stories about such job market difficulties,2 there has not been much political traction to them.

    California at the statewide level is a “blue” state and its (Democratic) political establishment tends to focus on jobs created since the Great Recession and the decline in the unemployment rate. Issues such as poverty and labor force participation are more likely to be raised on the right side of the political spectrum, but mainly to decry perceived state overregulation and high taxes to which such ills are attributed. As the PPIC survey suggests, however, the problems of the labor market – whatever their cause - are receding from public view. The political significance of jobs/economy is becoming progressively limited.

    PPIC data refer only to California, of course, but it is likely that similar attitudinal and political developments have occurred throughout the U.S. as the general unemployment rate has fallen. The unemployment rate may not capture all of the aspects of the labor market on which economists focus. However, at least at the state and local level, and absent another economic downturn, both the unemployment rate’s decline and its current reduced level suggest that other issues are likely to dominate future political contests. Unemployment may not capture all that is occurring in the labor market, but it seems to capture the level of public attention to that market.

    [1] Among “likely voters,” the statistical tie was reversed with the drought as the lead issue. For the most recent poll, see The question about the most important issue is asked several times during the year. I picked the earlier March surveys, or a date close to March if that month was not available, to match the most recent survey month.



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