January 31, 2004

The Chocolate Ration is Up Again!

The chocolate ration is up again! The wit and wisdom of Timothy Kane, Ph.D. Research Fellow in Macroeconomics in the Center for Data Analysis at The Heritage Foundation. He tells us that the U.S. economy is now at its "natural, full-employment" unemployment rate, and that declines in labor force participation rates and employment-to-population ratios are positive signs:

The American Workforce: Strong Facts Trump Weak Myths: The unemployment rate is coming back to its natural, full-employment rate of 5.7 percent. Many skeptics attribute lower unemployment to growing ranks of Americans so discouraged by weak labor markets that they have stopped looking for jobs, and therefore no longer count as unemployed, but that scenario doesn’t fit the data.

Consider the facts:

  • 4th quarter data are overwhelmingly positive.
  • Part-time workers are predominantly voluntary.
  • Teens are driving the lower participation rates.

Let's just pick on the third. Time is limited, after all. Kane writes:

Timothy Kane: Among [American] teens, the [labor force] participation rate peaked at 59 percent in 1978 and has trended down by 3 percent per decade. The [labor force participation] rate dropped dramatically by 10 percent over the last three years. Currently, only 43.2 percent of teenagers participate in the labor force, a level seen only once before, in 1965. For perspective, the rate hasn't been below 50 percent since 1971, save one month in April 1992.

We can only speculate as to why four in 10 teenagers now look for work, instead of the traditional five in 10. Most likely, young Americans have not lost jobs and become discouraged; rather, they never looked for a job in the first place. Perhaps working while in school makes less sense in an era when human capital development is so important for lifetime income. Far from a crisis in the job market, this is probably a positive trend for American students’ ability to focus on education. Take it as another sign of a workforce that is evolving towards knowledge-driven service industries and away from muscle jobs.

OK. Let's review the bidding. The labor force participation rate for teenagers 16-19 was 51.9% in December 1992, 52.1% in December 1996, peaked at a high for the last business cycle at 53.0% in April 2000, was 52.1% in December 2000, and since then has fallen off a cliff: 48.1% in December 2001, 46.3% in December 2002, and 43.2% in December 2003. The employment-to-population ratio for teenagers was 45.2% in December 2000, 40.0% in December 2001, 38.6% in December 2002, and 36.2% in December 2003.

Kane wants to pretend that the fall in the past three years in the share of teenagers in the labor force--at work or looking for work--is due not to the fact that it's a lot harder for a teenager to find and hold a job now than it was three years ago but to the fact that "working while in school makes less sense in an era when human capital development is so important.... Far from a crisis in the job market, this is probably a positive trend"? Has human capital development become so much more important--so much more important as to induce a fall in the share of teenagers in the labor force of 1/6--in the past three years? No. It hasn't.

What's happened since 2000 is not that the rewards to teenagers of forgoing work, staying in school, studying harder, and borrowing money have increased. What's happened since 2000 is that it's harder to find a job.

Now it is important to recognize one thing. The argument that the past three years have seen a revolution in the hearts and minds of young Americans as they recognize the value of not working so they can study harder as they finish their education is not meant to be convincing to anyone who studies American education or American labor markets. But it is meant to provide talking points to someone who wants to convince an underbriefed journalist that the bad news about the state of the labor market isn't really such bad news.

As I've said many times before, I'll stop calling this crew "Orwellian" when they stop using 1984 as an operations manual.


[Posted with ecto]

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Comments

I am surprised that productivity is not mentioned. Coke delivers directly to the shelf/ stock boy not needed. Teens that used to work the register and bag the plastic crap at Walmart have been replaced by self-scan/auto pay technology, etc. etc. They missed a biggie there.

Teens are less desireable employees because of restrictions on hours, they can't sell alcohol to people who want to drown their economic sorrows, as a group teens are flighty and unreliable. The jobs that teens used to work are now taken by refugees from the Bush economy.

As for teens studying for knowledge driven jobs, they may be moving to New Zealand or elsewhere. Richard Florida has an interesting article about Bush anti-science policies chasing creative jobs to offshore competitors. He suggests the potential is there for a national brain drain similar to the one that has been affecting the rural heartland.

http://www.washingtonmonthly.com/features/2004/0401.florida.html

Posted by: bakho on January 31, 2004 07:55 PM

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Dr. Delong--

Clearly, you and Mr. Young are old friends, being on a first name basis and all.

Posted by: David on January 31, 2004 09:06 PM

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Personally, Brad's first name is a bit of a mystery to me. I think it's something that starts with a J, but I've been unable to find out what SPECIFIC J-starting name it is. (Is it just J.? Like the "S" in Harry S Truman?)

Is Kane a real business-cycle theorist or something?

One has to wonder what's next with this crew. Evidently, teenage unemployment is an optimal response to the changing nature of the economy. Slavery was better for slaves than the income tax is for current Americans. What's next? Terrorism is a good thing? Oh wait, Chris Hitchens already beat me to it.

Maybe, uh, next they'll be endorsing cancer or wrongful death penalty convictions? ("Cancer is a good long-term deterrent to wasteful behaviors like smoking, and, when it strikes, promotes family values by uniting families in grieving!" "Wrongful death penalty convictions are good because they discourage people from putting to much trust in the government, thus promoting lower taxes, lower spending, and more free enterprise!")

Posted by: Julian Elson on January 31, 2004 09:47 PM

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Nairu = 5.7% still with the only proof being some squirrel stat on 16 year olds? I'm sorry but I have to go back to some cable TV interview with Joseph Stiglitz in late 2001, which I wish I could find the source as I don't remember but Stiglitz convinced me then we where below full employment. All I have found is some paper of his as early as 2000 that was very thought provoking on many aspects but the idea that NAIRU has not changed cannot come fron anyone who has read his paper.

Posted by: Harold McClure on January 31, 2004 09:51 PM

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It's like Mephistophles walked around and passed out standardized contracts and they got into a big auditorium together to sell their souls for power. I can't explain it otherwise. Thousands and thousands of otherwise rational and sensible people, suddenly abandoning all credibility and integrity in order to back up rather risky and sometimes sickeningly incompetent policies. I just don't get it. Do they really think things will get better in the future? They can't all be getting pressured or bribed. They must be buying into it at some level ... but why? It just doesn't make any sense. Is being on the side in charge just that seductive??? Lord Archon wrote that power corrupts and absolute power corrupts absolutely. It's shocking how many have sold out.

Posted by: Oldman on January 31, 2004 10:17 PM

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"Do they really think things will get better in the future? They can't all be getting pressured or bribed. They must be buying into it at some level ... but why? It just doesn't make any sense. Is being on the side in charge just that seductive??? Lord Archon wrote that power corrupts and absolute power corrupts absolutely. It's shocking how many have sold out."

Posted by: Oldman on January 31, 2004 10:17 PM

Many of them are being bribed - I don't have the figures handy, and am too lazy to look for them, but the Heritage Foundation alone (the biggest of the right-wing 'think tanks') should have a budget equal to the top three liberal foundations, at least.

In the mass media, it's clear to any objective observer where the money and power lay.

Frankly (not to insult honest economists), I've always figured that economics had a right-wing bias. (I'll take this back if I ever see anything about Mankiw being actually shunned by economists)

And in terms of political power and money, it's clear that the GOP currently holds at least 90% of the power to reward and to punish. And not only are they not afraid to use both, they *enjoy* punishing dissidents.

Posted by: Barry on January 31, 2004 10:47 PM

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Timothy Kane: The American Workforce: Strong Facts Trump Weak Myths: The unemployment rate is coming back to its natural, full-employment rate of 5.7 percent.

BLS LNS14000000 shows that in 1995-2001 the rate was lower than 5.7% (in 1998-2000 way lower, below 4.5%).
BLS CUUR0000SA0 shows that CPI in 1995 was 152.4 and in 2001 it was 177.1. Trying to remember my stat 101 that gives roughly 3% inflation (feel free to correct the number if I am wrong, the point is it was low).
So, what's "natural, full-employment" about 5.7%?

Posted by: Leopold on February 1, 2004 12:10 AM

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I'd agree with Oldman, and add, chillingly, that most of my online pals and associates, to a one, have refused to critique this Bush II crew and its trickle down our back policies, rather, they are frantically searching for that silver dime under the pillow for being Vater's happy little robots, knowing their retirement days have just been sold down the river by Moon-Mars-Star-Wars.
With so many seniors working for food, how can Johnny find a fill-in job after school?

Maybe there's good news? Congress has blocked outsourcing of Fed-funded contracts to overseas workforces (although that's closing barn doors after the cows have fled to India), and heard they've cut back H-1B work visas to only 65,000 this year. Did you read, since 2000, total H-1B foreign technical workers visas entering the US EXCEEDED all of American university graduations?
No wonder Johnny can't find a summer job!

The New Zealanders just throttled up their own work visa requirements in June 2003, limiting what was once a wide open door, to health care workers and computer technicians, ONLY. There were, "too many PhD's driving cabs and lorries."
Maybe soon Dr. Kane will be reduced to driving cab in New York, once these Bush neoliberal economists are shown up as clearly supercilious bastards. A sign of the times. Our media has been co-opted and corrupted. State Media. Der Vater. War is Peace, Black is White. Up is Down.

I troll through contractor chat rooms for new construction trends, and they reveal a chilling reality, the foreign workers laid off in the new outmigration of tech jobs overseas are competing for manual trades jobs, radically underbidding established contractors and driving everyone out of business. No wonder Johnny can't find a job, Ivan is doing it less than minimum wage, cash.

But it's not just pretending bad economic news is good. It's *everything* turned inside out.
Today as many Americans are being killed or wounded in Iraq, as were in Viet Nam, but now it's written in briefs, passive 3rd person who-what-why-where-when shorthand's: "A terrorist bomb exploded in Baghdad today and destroyed several vehicles in a Stryker platoon. One soldier was killed and an unknown number of soldiers and Iraqi civilians were wounded. Colonel ABC of the 123 Brigade said, "Our advance is being met with resistance."
http://www.detnews.com/2003/nation/0309/21/a01-276738.htm

Bush has attended only one memorial for our soldiers, no photos allowed, but literally dozens and dozens of fund raising dinners to get himself re-elected. When Bush was waiting in the wings with that Thanksgiving turkey prop at the secure air hanger in Iraq, he walked past a dozen body bags waiting to go home, without pausing or giving salute. Meant nothing to him.
http://www.zmag.org/content/showarticle.cfm?SectionID=15&ItemID=4912

Now get back to work.

Posted by: Trebor Howard on February 1, 2004 12:22 AM

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Perhaps working while in school makes less sense in an era when human capital development is so important for lifetime income.

Those wily Uber-teenagers. Wouldn't want a job renting videos to take time away from that CAT scanner they're building in the garage.

Hi, Tim. I'm Fouro. I'm from Earth.

Posted by: fouro on February 1, 2004 12:37 AM

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Thanks Barry and Trebor Howard,

For your responses. To be honest, the oldman's face fell when he heard what you had to say. It's always hard when you find out you still have more innocence left to lose. The oldman has already switched his party affiliation from elephant to donkey and participated in the primaries. But it seems from everything I'm picking up with my ear to the ground, that that ain't enough. Guess the oldman is gonna have to come out out of "retirement" and get even more involved. Sigh. Fighting the good fight was always a big pain in the ass, now more than ever. It's just that the alternative is worse.

Posted by: Oldman on February 1, 2004 02:09 AM

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Speaking of the jobless "recovery", I found this little gem on Yahoo! News website.:

"Self-Employment May Mask U.S. Job Growth" (sorry, the link to the article was too long to post)

According to the author, the job #'s may not be all that bleak because - get ready for this! -more Americans are self-employed contractors! Maybe I'm misreading the article, but I really don't understand how the fact that more people working as "independent contractors" (aka Temp Employees) without any sort of benefits (including health insurance) is good news. Maybe the guys at Reuters can explain it to us.

Posted by: gene214 on February 1, 2004 02:26 AM

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I would suggest that if Brad wants his blog to be popular, there has to be some feedback for the posts. I do not know what it might be - numbers/issues found by the posters in his teaching, special once-a-year meet at Starbucks or something else. Otherwise for anyone posting here the only fun is in abusing someone.

Posted by: Leopold on February 1, 2004 04:31 AM

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Trebor
Devastating post (esp: "... knowing their retirement days have just been sold down the river by Moon-Mars-Star-Wars.
With so many seniors working for food, how can Johnny find a fill-in job after school?"

The franchised hardware store I visit is populated by these surely-to-Christ-he's-retired guys. They don't qualify for the $2/hr "training fee" that is exacted from the minimum wage McDonalds here, so I never see anybody but teens there. The pan-handling on the street is mixed although I would say pretty uncommon to see elderly women.
"Maybe soon Dr. Kane will be reduced to driving cab in New York..." Let's hope.
Or he could be pan-handling too as soon as it becomes obvious he is providing a service that could be undercut by anyone. Like the Yahoo post referred to by Gene, the spin is so thin even the kids aren't buying the 'contractor' BS.

The good news? This view of employment illuminates (for me atleast) the picture obscured by the Payroll/Household stat debate. The devil is in the details.

Posted by: calmo on February 1, 2004 06:36 AM

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"And in terms of political power and money, it's clear that the GOP currently holds at least 90% of the power to reward and to punish. And not only are they not afraid to use both, they *enjoy* punishing dissidents."

Posted by Barry.

Sorry to continue the slightly OT theme, but the teenage working topic is not worth arguing about and and this is the topic.
I completely agree.
It really just reinforces the lousy employment situation except in the area of "professional conservative" no matter what the field--economics, journalism, etc. These people want a good job and chose to follow the model that's working. Another point is the difficulty of landing one being on the rational side. To use a sports metaphor: the liberal bench is just too deep.

Posted by: Dharma bum on February 1, 2004 06:59 AM

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There are no poor people in America. There are no unemployed people in America. There are no people in America who lack medical insurance. Really, there may be no middle class people in
America. We are all rich rich rich, though some of us are too lazy to be rich as really can be.

Posted by: lise on February 1, 2004 08:02 AM

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http://www.epinet.org/content.cfm/webfeatures_econindicators_gdppict

Fourth quarter output growth generated only 207,000 jobs. This 0.6% growth rate for jobs remains less than half the 1.3% growth rate (about 450,000 jobs per quarter) necessary to keep up with the working-age population. When analyzing these issues, commentators often note the "lag" from the end of a recession to the start of job growth. But what the analysts often fail to mention is how extraordinarily long the lag was this time. In fact, jobs started to return within three months after all prior recessions on record but took 21 months to reverse course after this latest recession.

The weak job market is also reflected in today's data on national income. The final quarter in 2003 saw real labor compensation grow at an annualized rate of only 1.6%, too slow to generate a healthy self-sustaining recovery. Since the last recession ended two years earlier, labor compensation has crept up by only 1.7%.

Posted by: anne on February 1, 2004 08:14 AM

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Monthly employment data through January 2004, show that African-American women and men have fared more poorly than other ethnic groups since the recession ended in November 2001.

Posted by: anne on February 1, 2004 08:19 AM

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I say it again; it is time now to expand higher education coverage towards a hundered percent in America.

John Irons gave a link to a CBO study the other day about how the gov, families and students share higher education financing. I think there is now a need to shift financing a bit from student to government, or else, given the youth employment statistics here, higher education enrollment may even get worse.

Posted by: bulent on February 1, 2004 10:36 AM

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The call to "educate everyone" overlooks a crucial fact about the U. S. labor market: the majority of the job openings over the next 10 years will be in jobs that require no college ed and pay less than $18,000/yr (check out the Bureau of Labor Stats). If everyone in the U.S. had a college degree, we'd just have millions of college-educated people working shit jobs. --The problem is structural: the U. S. economy requires a huge pool of low-paid laborers. Giving everybody an education won't make that fact go away.

Posted by: Miles Jackson on February 1, 2004 11:35 AM

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"the majority of the job openings over the next 10 years will be in jobs that require no college ed and pay less than $18,000/yr"

This is nonsense. We are not running out of work, we have fiscal policy that is not stimulating enough demand and so enough good work. We are not running out of work!

Posted by: lise on February 1, 2004 02:39 PM

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Miles Jackson

I was just rightly criticized for my "nonsense." Sorry, but the lump of work argument has been about for a century and wrong for a century. We are not out of work, just out of enough demand. The lump of work argument deserves attention, but deserves to be set aside. I must be nicer.

Posted by: lise on February 1, 2004 02:51 PM

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For all of its silly boosterism, Timothy Kane's post on the labor market was the most informative thing I have seen on the subject in a while (if it can be believed, caveat emptor surely applies for Heritage Foundation). Sure, Brad DeLong is right that the decline in teen LFP from 2000 must be a change in cyclical conditions (though Kane is surely right that the fact that it is currently near trend is worth noting.)

But the data that 2/3rds of the decline in total LFP is due to the decline in teen LFP (and probably even more explained by teen plus college year TFP) surely puts things in perspective. If you believe NYT reporters, every struggling worker is a god-fearing family man who cant find work at any wage in any part of the country. If it turns out the actual representative "struggling worker" is Timmy who decided to go out for the swim team because the malt shop isnt paying US$12 an hour like they did in the bubble years, it would certainly change the way I have been looking at labor markets. It might also explain why productivity growth is so high, low productivity workers are leaving the labor market at a fast rate.

Posted by: wallace stevens on February 1, 2004 07:18 PM

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From Scientific American, Feb. 2004, p.26 (no online cite available):

Number of science and engineering docorates awarded:

1998 27,283
2001 25,525
2002 24,558

Percent of PhDs awarded to U.S. citizens and permanent residents in 2002

physical sciences 55
engineering 39
humanities 81

Posted by: masaccio on February 1, 2004 08:28 PM

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Barry wrote, "(I'll take this back if I ever see anything about Mankiw being actually shunned by economists)..."

Don't forget Martin "Clinton's tax increase will wreck the economy [paraphrase]" Feldstein.

Posted by: liberal on February 2, 2004 12:02 AM

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lise wrote, "'the majority of the job openings over the next 10 years will be in jobs that require no college ed and pay less than $18,000/yr'

"This is nonsense. We are not running out of work, we have fiscal policy that is not stimulating enough demand and so enough good work. We are not running out of work!"

You're right that fiscal policy isn't well-done, and that we're not running out of work. But you didn't respond to the poster's claim.

Posted by: liberal on February 2, 2004 12:03 AM

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Miles Jackson:

"If everyone in the U.S. had a college degree, we'd just have millions of college-educated people working shit jobs. --The problem is structural: the U. S. economy requires a huge pool of low-paid laborers. Giving everybody an education won't make that fact go away."

1- What "creates" jobs is investment.

2- Availability of labor is a crucial factor in attracting investment. If you have a pool of highscool graduates, you get investment creating jobs for highschool graduates. If you have a pool of college gradutes, you get investment accordingly.

3- With productivity rising and life expectancy increasing, it may very well be a good strategy to cause to increase average age when people begin to participate in labor market.

4- In a restaurant, I'd rather be served by Harvard FAS graduates than highschool graduates -- the Harvard FAS graduate is much more liable to say just one word in passing, or make just one gesture, that would make my day. And then I myself would be willing to serve at a place catering to senior citizens.

5- Agriculture now employs only one percent of the population. Manuf and services are following suit. Other sectors, other markets, entirely new sectors and markets must be developing, if civilization as we know it is not to collapse. Until those yet unknown sectors and markets come along and develop (and then "economy" and science of economics get re-invented), it appears a good idea to expand the education sector.(Though Dubya prefers to expand homeland security sector.)

6- Yes, yes, America can afford higher education for all -- amply so, no sweat, just tell the narrow special interests to go play in the sand.

Posted by: Bulent Sayin on February 2, 2004 07:08 AM

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A simple thought experiment: every adult in the U. S. has a Ph.D. Will this suddenly make all the day care jobs, janitor jobs, security guard jobs disappear? These necessary, important jobs will not go away just because more of the population is educated or because there is more "investment". If our economy needs millions of people to do these poverty level jobs--and yes, the proportion of the workforce in this secondary sector of the labor market is growing!--then many working people will work 60-70 hrs a week and still live in poverty. --And again, these people will live in poverty regardless of their education or the level of business investment. Why is this simple fact about our economy so hard for some people to understand?

Posted by: Miles Jackson on February 2, 2004 08:57 AM

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Oldman:
"It's like Mephistophles walked around and passed out standardized contracts and they got into a big auditorium together to sell their souls for power. I can't explain it otherwise."

My theory is that aliens hit the White House with their stupid ray.

Posted by: Kosh on February 2, 2004 10:31 AM

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Who is performing these jobs that the teens used to have?
1) Nobody - they are outsourced or just gone?
2) Immigrants / illegal aliens / guest workers?
3) Older folks who used to have better jobs?

(or 4 - some combo)

I find choice 3 the scariest. If people who are expericed in the work force have to take unskilled, entry level jobs to survive, it is not a good sign.

Also, what are these teens (some HS graduates) doing now instead of working? Is there an increase in college attendance? Couch usage? Anybody who trys to say that teen unemployment is somehow not relevent to how the economy is really doing ignores the fact that those teens are spending less money. This does have a trickle-up effect.


Posted by: MobiusKlein on February 2, 2004 03:13 PM

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Miles Jackson:
Please tell me where you get your numbers. The following is from the BLS new release for their recent employment projections to 2010:

"Employment in all seven education or training categories that generally require a college degree or other post secondary award is projected to grow faster than the average across all occupations. These categories accounted for 29 percent of all jobs in 2000 but will account for 42 percent of projected new job growth, 2000-2010."

http://www.bls.gov/news.release/ecopro.toc.htm

That is a 13 percentage point, or 45% increase in the proportion of jobs that need some post secondary training. Maby Bulent Sayin was over reaching in recommending 100% with college degrees of some kind, but it seems Sayin was moving in the right direction.

I can't find any BLS stats on growth of employment by income, or any evaluation reports on past estimates. But if you look at Table 664 of the 2002 US Statistical Abstract, for distribution of persons with income, you see that about 60% of those 25 or over make more than $18,00 a year. So that is quite a shift you are talking about. Please tell me where you found at projection.

Posted by: jml on February 2, 2004 11:18 PM

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I forgot to correct what appears to be a typo in the BLS news release. When I worked out the numbers from Table 4 in the news release, the 42% refers to the proportion of jobs that require some formal post-secondary training in 2010. That is not the increase. The BLS has evaluations of past projections, and they have been fairly accurate.

Posted by: jml on February 3, 2004 12:08 AM

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"...moving in the right direction..."

That's the idea, jml. I'm not suggesting achieve 100 percent coverage in 36 months (though it might not be a bad idea for a number of other reasons).

Posted by: bulent on February 3, 2004 12:52 AM

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P.S. I love Big Dubya.

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