Employment: A New Trough
The employment situation reported today showed a decline in nonfarm payroll employment. That means that my favorite indicator, labor capacity utilization, is at its lowest level since the recession began.
The National Bureau of Economic Research, which uses spending as a major indicator, sees the recession as having started late in 2007 and ended in June of 2009. However, if you use labor capacity utilization as the sole indicator, the economy has been sinking since April of 2006 and continues to sink, with the decline only interrupted by temporary Census Bureau hiring earlier this year.
The economy is not doing well at creating new patterns of sustainable specialization and trade. I do not think that this is President Obama’s fault. I think it is the nature of the situation in which we find ourselves.
If I were giving macroeconomic advice, it would be.
1. Try a Sumnerian monetary expansion. I do not think it will do much, because I do not think that sticky nominal wages are the issue, but I could be wrong. If Sumner turns out to be right, the benefits would be large.
2. Put the foreclosures behind us, not in front of us. Get houses out of the hands of people who have not made their mortgage payments. Putting foreclosures behind us will at least give us a housing market where people can believe that prices reflect supply and demand.
3. Reform the tax system. One goal should be to reduce marginal tax rates on the business activities of hiring labor and undertaking investment. Another goal should be to separate health insurance from employment, thereby reducing a major wedge between the marginal product of low-skilled workers and the take-home pay they can receive.
4. Do as much as you can to eliminate the licensing and accreditation bottlenecks in education and health care. Develop alternative paths to make it easier for a private or charter school to achieve accreditation. Develop alternative paths by which someone can become certified to engage in health care services, such as physical therapy.