Sunday, October 10, 2021

Dean Baker Deep dive on the Jobs Report and Supply chain issues

Building Back Better and the September Jobs Report

If President Biden was designing a jobs report to advance his Build Back Better agenda, he could not have done better than the September jobs report. (No, he didn't manipulate the data.) It shows the need for improving our caring infrastructure to make it possible for more women to work. It also shows the need to improve our infrastructure to limit supply chain disruptions.

But before getting to these issues, it's first important to dispel the idea that this was a bad jobs report. The September data showed a 0.4 percentage point drop in the unemployment rate, bringing it to 4.8 percent. Most analysts had predicted a drop of just 0.1 or 0.2 percentage points. We didn't get the unemployment rate down to 4.8 percent following the Great Recession until January of 2016. And, this decline was due to workers getting jobs, not the unemployed dropping out of the labor market. The number of employed in the household survey increased by 526,000.

The negative view of the September report is based on the weaker than expected job growth reported in the establishment survey. The increase of 194,000 in payroll jobs was well below the 400,000 to 500,000 job gain most analysts had expected. While that seems like a bad story, a closer look shows otherwise.

The biggest contributor to the weak job growth story was the loss of 161,000 jobs in state and local government education. There is not an obvious explanation for this job loss (I'll come to back to this issue), but suppose that we didn't see this sort of job loss in public sector education. Suppose that we instead regained more of the education jobs lost in the pandemic.

The private sector added a healthy 317,000 jobs in September. If the public sector had added 100,000 jobs for the month, as many had expected, the Bureau of Labor Statistics would have reported job growth of 417,000 in September, well within the generally expected range.

So, the big question is why are we losing jobs in education instead of adding them? It's hard to come up with a good story here. Some analysts have suggested the problem is with the seasonal adjustment. On an unadjusted basis, state and local education added 1,033,000 jobs in September. The argument is that the seasonal adjustment is inappropriate for this year, since the pandemic has altered the normal timing of the school year and employment patterns.

But this argument really doesn't fit. If we just look at the non-seasonally adjusted data, employment in public education is down 431,000 from the levels of September of 2019, a decline of 4.8 percent. Schools are back to in-class instruction pretty much everywhere. Unless we have seen a sharp rise in student-to- teacher ratios, or a large decline in support staff, this drop in employment from before the pandemic doesn't make sense.

Anyhow, we will need to sort out what is going on with employment in public schools, but if we set that issue aside for the moment, the jobs picture in the establishment survey looks pretty good. As noted earlier, the 317,000 private sector jobs added in the month was very much consistent with expectations. But an element of the picture that has not gotten nearly attention it deserves is the increase in the length of the average workweek.

The average workweek rose by 0.2 hours. This rise in average weekly hours, coupled with the rise in employment, led to a rise of 0.9 in the index of aggregate hours. This is the largest increase since March.

A story that is consistent with a rise in hours, coupled with a limited increase in payroll employment, is that employers are having trouble getting the workers they need to meet the demand they are seeing. They adjust to this situation by working their existing workforce more hours.

The continued rapid growth in wages, especially for lower paid workers, fits with this supply-side story. The average hourly for production and non-supervisory workers increased at a 6.7 percent annual rate comparing last 3 months (July August, September) with the prior 3 months (April, May, June).  In the leisure and hospitality sector (primarily restaurants) the annual rate of wage growth over this period has been 18.1 percent.

The implication of this view is that the limitation on employment growth at this point is largely a supply story, not a lack of demand. Workers are not returning to low-paying jobs, at least not without getting considerably higher pay and/or an improvement in working conditions.

The sectors showing the largest percentage drop in employment from pre-pandemic levels are overwhelmingly low-paying. Employment in nursing homes is down 15.2 percent.Employment in child care is down by 10.4 percent from its pre-pandemic level. Employment in the temporary help sector is down 8.7 percent. Restaurant employment is down by 7.6 percent from its pre-pandemic level. By comparison, overall employment in the private sector is down by just 3.0 percent.

It is worth noting here that the $300 weekly unemployment insurance supplements, and the special pandemic unemployment insurance programs, are not likely a big factor in discouraging people from working. Most states ended the supplements and pandemic programs in June and July. The national program ended in early September. If these benefits were discouraging people from working, we should have seen most of the effect from ending them by September.

Increasing Labor Force Participation

While we are going to see some reshuffling of the workforce, which will take time to work through, we can easily identify the reason some people, specifically women, are not working or looking for work. The BLS reported that 1.6 million people, 960,000 of them women, were not working or looking for work because of the pandemic.

This is presumably because they either fear getting Covid themselves or transmitting it to a family member who may have a health condition, or may be caring for a family member who is already ill. If these 1.6 million people were in the labor force, it would reduce by more than one third the falloff in labor force participation since the start of the pandemic. This again shows the economic importance of Biden's efforts to control the pandemic.

Of course, the issue of women's labor force participation long predates the pandemic. While the United States was near the top among wealthy countries in women's labor force participation four decades ago, it is now a laggard. It not only ranks below the Nordic countries, it has also been passed by France, Germany and even Japan in women's labor force participation.

According to the OECD, in 1980 the labor force participation rate (LFPR) for prime age women (ages 25 to 54) was 64.0 percent in the United States. That was slightly lower than the 64.7 percent rate for France, but well above the 56.7 percent rate for Japan and 56.6 percent rate for Germany. In 2020, the LFPR for prime age women in the United States had increased to 75.1 percent, but it had risen to 82.6 percent in France, 84.5 percent in Germany, and 80.0 percent in Japan.

The reason the U.S. is a laggard is not a secret. We lag in providing access to child care and family leave. Since woman continue to disproportionately have caregiving responsibilities for children and family members in need of assistance, our failure in these areas makes it difficult for many women to work.

This is a problem that has gotten worse in the pandemic. As noted earlier, employment in child care in September was 10.4 percent below its pre-pandemic level. Since there has not likely been a boom in productivity in this sector, this drop in employment means that the number of child care slots is likely close to 10.0 percent lower than before the pandemic. That means that finding quality child care is even more difficult today than it was a year and a half ago.

Getting more child care workers means raising the pay and improving conditions for child care workers. This is one of the key provisions of Building Back Better plan. Improved access to child care, along with paid parental leave (another provision) will give millions of women the option of working.

These provisions are also likely to lead to better outcomes for children in terms of education and employment, which is both good for them and good for the economy in the long-run. But, by increasing access to child care and providing parental leave, we can see a near-term boost to the economy from more people working. If getting more people working is a goal of our economic policy, this is an important route for getting there.

Supply Chain Problems

The September jobs report also gave us a reminder about the country's supply chain problems. The number of people employed in automobile manufacturing fell by 6,100. This is undoubtedly due to the widely publicized shortage of semiconductors, which is result of a fire at a major manufacturing facility in Japan. There surely are other industries where supply disruptions limited employment, although the link may be less clear than in the auto industry.

There are several points worth making here. First, in the context of a worldwide pandemic, our supply chains have actually held up remarkably well. At least in the United States, we have not had problems of people not getting food, medicine, and other necessities. Given the size of the shock, having to wait an extra month or two for a car, or paying five percent more, hardly sees like a great tragedy. Still, we don't want to see these delays and the resulting economic slowdown if it can be avoided.

It is important to note that the takeaway from the shortages is that we need diverse sources of supply, which does not necessarily mean domestic sources. If we rely on a manufacturer in Malaysia for a product, which then become unavailable for whatever reason, if we can get the product from Korea or Mexico, that is fine. There is no special virtue on this issue in getting it from the United States.

This matters because we can see shutdowns by U.S. producers as well. Marketplace radio had a piecelast month about a shortage of paint across the country. According to the piece, one of the main culprits was a shutdown by resin manufacturers (an ingredient in paint) in Texas last winter due to the unusually cold weather. In this case, relying on domestic suppliers did not prevent a supply chain disruption.

Another key point is that much of the problem is not actually in producing the items, but in transporting them. The Washington Post had an excellent piecethat described the backlog in our ports and on railways that is preventing items from getting to their destination. This means that even if we are getting the goods from China, Thailand, or anywhere else, they are not getting to where they need to go because of inadequate infrastructure. Modernizing our ports and railways is another key part of Biden's Building Back Better plan.

Global Warming and Supply Chain Disruptions

The last area where the September job report is an advertisement for the Build Back Better plan is on climate change. Many of the supply chain disruptions we are seeing now, and will see in the future, are the result of global warming.

The cold Texas weather, that led to the shutdown of the resin manufacturers, which contributed to the paint shortage, was an extraordinary weather event that likely would not have occurred if we were not experiencing climate change. More frequent hurricanes and other extreme weather events, that lead to shutdowns in manufacturing or distribution facilities, will be more common as global warming advances. And, we will see more crop failures and higher prices for a wide range of agricultural products due to excessive heat and droughts.

If we don't begin to make serious efforts to reduce greenhouse gas emissions, as proposed in the Build Back Better plan, we will see many more climate related economic disruptions in future years, as well as higher prices for a wide range of products.

Conclusion: The September Jobs Report Was an Advertisement for Build Back Better

There are many aspects to the jobs report that gave ambiguous signals about the near-term future for the economy. However, the problems that are most apparent in this report indicate the urgency of many of the items in Biden's agenda. Our senators and congresspeople should give them serious thought.


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