October 03, 2003
Allan Meltzer Long Ago Stopped Being Careful
Allan Meltzer long ago stopped being careful. He accuses Alan Greenspan of "misread[ing] the employment data... referr[ing] to the 'weakening' labor market. It isn't so.... Don't believe these reports.... All these alleged facts are either wrong or greatly exaggerated, based on the same faulty source." Meltzer goes on to write:
WSJ.com - A Jobless Recovery?: There are two sources of labor market statistics, the Establishment Survey and the Household Survey.... The first asks manufacturing and service sector companies how many employees they have. The second asks a sample of people whether they have jobs... old firms die and new ones are born. The Labor Department learns about the deaths quickly, but it takes longer to learn about the births. When the cafeteria workers are asked about their employment, they report that they are working. If they work for a new firm, the Establishment Survey misses them for a time. But their former employer reports that the number employed at the firm declined this month. Both reports are true, but the second is misleading when taken to the aggregate level.... Downsizing large firms in the interest of greater efficiency is a big source of the new, small firms. It's good to get the efficiency gain, but many of the new jobs are the same old jobs repackaged. All this has been known for some time. Why does the Greenspan Fed ignore it?
There are two sources of data on employment, true. There is reason to think that the establishment survey produces estimates of employment growth that are somewhat biased downward in the early stages of business-cycle recovery, true. But then the column leaves reality behind and heads for the Gamma Quadrant.
The real answer to Allan Meltzer's have-you-stopped-beating-your-wife question (and Allan knows very well that this is the answer, although he hopes that his readers do not) is that the Federal Reserve is not ignoring and has never ignored the statistical discrepancy between the establishment and the household survey.
The fact is--as Meltzer knows well (although he hopes that his readers do not)--that both the household survey and the establishment survey show a weakening labor market: it's not just the establishment survey. For example, the household survey says that the country's employment-to-population ratio falling to 62.0% in September, down from 63.0% a year ago, and at its lowest level since 1993.
When reading anything by Allan Meltzer--or, indeed, anybody who writes anything published on the Wall Street Journal editorial page, the only rule to follow is "verify, and even then still don't trust it."
Posted by DeLong at October 3, 2003 07:26 PM
Recently, the BLS started publishing separate figures of job loss due to downsizing and closings and job gains due to expansion and new business.
It really is pathetic. Administration supporters like Meltzer are trying to spin like crazy and somehow convince people the economy is better than it is. It does not work that way. People experience the economy first hand, through relatives and friends. We know when it is hard to find a job. We know who went home to live with Mom and Dad for a while. We know who are in grad school waiting for the economy to improve. No amount of spin is going to make the ding letters go away or the flood of thousands of applications for a single job.
The economy is real. It is not a game. Real people get hurt by bad policy. These pundits and politicians just don't get it.
Brad: Thanks for taking on that Meltzer op-ed in the Journal. I was one who read it and couldn't understand its basis. However, I do know enough not to place too much (or any) faith in anything written on the editorial page of the Wall Street (cheer)Journal. I usually avoid reading all of it (intentionally I must say), but this one I could not resist.
Now the real question. Why are certain economists, some with a heretofore good reputation, willing to participate in fictionalizing economic data or its interpretation? What is in it for them other then a sullied reputation from people who see through their nonsense?
The job gains shown in the household survey simply reflect the point that the BLS changed the definition of the people covered in January. The change was part of the standard program of updating data becasue of new census data.
But all of the gain in the payroll data occurred in January when the BLS started using the new definition. However, they just appended it to the old data. But now you are adding crabs and apples to get crab apples that have the household survey showing strong employment growth. Adjusted for this the two data series on employment both show a very weak labor market.
Historically, the household survey almost always leads the payroll data at turning points -- do a chart of the year over year change of both series.
But it is not because of what Meltzer claims. It is simply that small firms and start-ups react quicker to cyclical change than large firms where the CEO has made a declaration to reduce head count by x %, and no one is going to do any hiring until word comes down that the top level of executives has changed its mind about business conditions.
Daniel Gross has a fair and balanced discussion of the Establishment Survey and the Household Survey over at slate.com. Gross appears to be upset with the White House for encouraging the spin doctors like Metzler.
Please. What spin are we talking about? The spin that makes listening to Administration sycophants an exercise in avoiding logical lunacy? Who are these hickory hackerys?
"When reading anything by Allan Meltzer--or, indeed, anybody who writes anything published on the Wall Street Journal editorial page, the only rule to follow is 'verify, and even then still don't trust it.'"
Bakho, WSJ isn't spinning to the vast American middle-class who, as you say, is quite aware of the real employment situation. And they can't be spinning (unless I'm missing something) to the captains of industry who make the labor decisions. But in-between those two is a powerful class that knows enough and is influential enough to be dangerous, but not enough to see through WJS's spin, and who has relative employment security. That's their readership. It's the upper-middle and lower-upper class white, male, business management level that is probably 80% Republican. Furthermore, it occurs to me now that I think about this group, that they're probably seething with resentment because they expected to be CEOs by now, but aren't, and they're pretty sure that it's the fault of affirmative action or something. They're well-off, they're white, they're male, and they've _worked hard_, dammit, and clearly the world has been unfair to them.
Keith: you forgot to add that their stock options are worthless and they are about to pay taxes on the imputed income.
Keith that is a good point. It is necessary for rich white men to think the economy is better than it is. If they will be more likely to think Bush will win then it will seem worthwhile writing that check for $2000.
What I think I know about outsourcing (sometimes to former employees) and what Meltzer seems recognize when he says that "Downsizing large firms in the interest of greater efficiency is a big source of the new, small firms" is that the new smaller firm pays less and offers lesser benefits. However, he leaves that unstated. Why would he do that? Last time I looked, year-over-year gains in real weekly earnings were hovering around zero. This is not a time to celebrate wage flexibility.
By the way, stepping back a moment from a real interest in the humans that encumber the jobs in question, does anybody know of any recent work on changes in the "downward stickiness" of wages? Seems to me that inflation is no longer the only way to lower real wages. These days, if employees are resistant to nominal wage declines, there is a managerial alternative - outsource. No more sticky wages.
We discuss Meltzer's column and a more absurd column also in the WSJ, by Brian Wesbury at the blog, Economists for Dean.
I have also heard that this might have been pushed on Meltzer by the CEA.
The last point about the CEA is based on an educated guess not on any confirmed information.
'recent work on changes in the "downward stickiness" of wages'
And don't miss the growing importance of temporary employment in this months job gains.
"The job gains shown in the household survey simply reflect the point that the BLS changed the definition of the people covered in January. The change was part of the standard program of updating data becasue of new census data.
But all of the gain in the payroll data occurred in January when the BLS started using the new definition. However, they just appended it to the old data. But now you are adding crabs and apples to get crab apples that have the household survey showing strong employment growth. Adjusted for this the two data series on employment both show a very weak labor market."
Spencer England is correct!