Thread by @JWMason1

Here's a new post from @rortybomb and me, on how to think about tomorrow's jobs numbers. rooseveltinstitute.org/2021/06/03/don…

There are three big things to keep in mind about tomorrow's jobs numbers. First, this stuff is noisy. Wherever the numbers come in, you should not draw strong conclusions from them; whatever the picture is now, it may look very different when the revised numbers come in.

While the revisions this spring weren't that big, they changed the picture in an important way: the initial numbers suggested accelerating growth over December-March, while the revised ones are closer to linear. This is important for interpreting the relatively low April number.

Noisy data plus the human brain's talent for discerning patterns in noise plus our media ecosystem's premium on immediacy all push toward inventing spurious stories. So our first suggestion is: wherever tomorrow's jobs numbers come in, don't let them move your priors too much.

The second thing to keep in mind about the jobs numbers is that, whatever we learn about employment in the last couple months, there are good reasons to expect strong employment growth over the next couple of years, barring something unexpected happening.

There are several major tailwinds boosting demand in the next few years. Pandemic restrictions are still depressing employment in much of the country, but not for much longer. Income support programs over the past year have dramatically improved household balance sheets.

And while supply constraints may be an issue in some sectors in the short term, they will spur investment which will both raise capacity and itself be a source of additional demand.

Barring news that would change our views about these fundamental factors, one month or quarter of new data shouldn't change our views about the long-term prospects for employment growth very much.

I don't agree with Ricardo Reis on much - in fact this thread is to me a great example of what is profoundly wrong with economics - but on the fundamental point that we can't interpret data without some underlying vision of the economy, we agree.

https://twitter.com/R2Rsquared/status/1400518290196287491?s=20

The third point @rortybomb and I make is that to the extent we do see surprisingly weak employment growth, it doesn't make sense to blame unemployment insurance or labor supply constraints more broadly.

As any mainstream macroeconomics textbook will tell you, in the short run causality runs strictly from demand to output to employment. Labor supply changes - whether UI benefits or demographics or whatever - affect only the wage at the given level of employment.

Labor supply conditions do, of course, affect employment in the mainstream story - but only via the reaction of the central bank or some other policy maker. In the absence of a contractionary policy response, reduced labor supply raises wages but leaves employment unchanged.

Faster wage growth in the past year is almost all compositional - low-wage jobs fell more in the pandemic, and are recovering more now. But there's reasonable room for debate about how much, or whether, unemployment benefits are keeping wages higher than they would otherwise be.

But, 1) there's no evidence that higher wages are a factor in slower-than-expected employment growth - food service and other low-wage sectors have actually seen relatively higher job gains; and 2) faster wage growth may not mean higher inflation, it can mean a rising wage share.