I spent a lot of time swatting down the counterintuitive stories about labor shortages in the aftermath of the Great Recession.

But it is different now: post Great Recession wage growth was 2pp below what it was pre-Great Recession. Now wage growth is equal to pre-pandemic.
You see this especially in the distribution of wages. The first quartile of workers had extremely low wage growth in 2011-14 but have particularly high wage growth now. atlantafed.org/chcs/wage-grow…
Moreover, these data only go through March and as @arindube has pointed out there is a lot of intertia in the data. So would not expect to see a lot of increase yet.
The labor market right now is complex, many different parts. But fighting the same post-Great Recession battles misses a lot of what is going on right now.

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More from @jasonfurman

4 May
One thing to keep in mind is that anecdotes are terrible. But lagged data in a rapidly changing market is also terrible. So right now would place more than usual weight on anecdotes (and my normal weight is zero). And use real-time data to update.

For example: job openings.
Job openings are very high but so are the number of people looking for jobs. A good measure of labor market tightness is the ratio of job openings to the unemployed. That was 1.4 unemployed per job opening in February, similar to what it was in mid-2016.

BUT, that was February. The economy has changed rapidly since then. The number of job openings on Indeed increased 17% from the end of February to the end of April. The number of unemployed has likely fallen since March (the most recent data).

Read 6 tweets
29 Apr
The general view is that labor market in February or March 2021 had a lot more slack than it did in 2019. That is probably right and if the only data you had was the unemployment rate, employment rate or jobs it would seem true.
But if instead the only data you had was on labor market flows from JOLTS you would think the economy was much hotter in February 2021 than in 2019, in fact you might think it was the hottest in decades. (@nick_bunker)
Between these two, if all you had was the data on composition-adjusted wage growth from the Atlanta Fed you would note that wage growth was roughly the same as 2019 and was highest for the lowest-income workers. So labor market not much looser than 2019. atlantafed.org/chcs/wage-grow…
Read 11 tweets
29 Apr
GDP up 6.4% annual rate (it actually grew 1.6%) with large increases in consumption, biz fixed investment, housing & govt offset by a large reduction in inventories & increase in the trade deficit.

(US residents bought more stuff but a bunch came out of inventories and imports.)
As a result, U.S. GDP was 3.8% below it's pre-pandemic trend in Q1.

Note, this is not an estimate of the output gap, I would suspect the output gap was somewhat smaller because of some scarring from pandemic (less investment, R&D, early retirements, deaths).
The pattern of shortfalls from trend are wild:

Consumer durables 15% above trend in Q1 while services 8% below trend.

Business fixed investment still not recovered by residential investment booming.

Govt purchases below trend too (driven by S&L).
Read 5 tweets
28 Apr
People pointing to the lack of wage acceleration as evidence against job shortages. But I think the wage evidence is a stronger point for team tight labor market than team slack.

Wage growth remains high in the Atlanta Fed's composition-adjusted wage tracker. Image
Nominal wage growth at/above what it was in 2019, a year when slack was not huge. Data is for March, presumably the market tightened more since then and will continue to tighten. Wage growth tends to lag.

Huge contrast to low/falling wage growth in 2002 and 2010.
Good arguments for substantial slack: large net job loss & low epop, although less clarity on the relative importance of employers not offering jobs or people not taking them.

Also good arguments on the other side, like record or near record openings/quits.
Read 5 tweets
28 Apr
The American Families Plan is excellent, it would make a difference for tens of millions of families today--and expand incomes, opportunities and economic growth in the future. My main reaction is to want more of almost all of it. whitehouse.gov/briefing-room/…
Almost everything in the plan would directly benefit people, particularly children, particularly lower-income children. You can't go very wrong with these policies, they give $$$s to people with very high marginal utility.
Moreover lots and lots of evidence for LR benefits in the form of higher wages, more employment, better health, and more. Most importantly good for the families but also good for growth.
Read 13 tweets
8 Apr
Earlier today I had an exchange with @StephanieKelton. She referred me to a paper. I read the paper and it makes my point and contradicts her claim.

There is a broader lesson here about whether MMT is an alternative positive theory or normative frame. Thread.
As a positive prediction, I would say that higher interest rates reduce output and lower output reduces inflation. You can debate the magnitudes but I would use those signs.

That is separate from the normative question of whether one should raise rates, target inflation, etc.
@StephanieKelton appeared to have the opposite positive prediction: "Have you considered the possibility that raising rates might move inflation higher?"

I said "No" and she cited a paper with a theoretical model and empirical estimates that *contradict* her positive statement.
Read 12 tweets

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