Unemployment Duration as a Signal

Catherine Rampell writes on The New York Times Economix blog about duration of unemployment as an apparent signaling device for potential employers.  She writes:

In the fall of 2009, the authors sent out 12,054 fake résumés for 3,040 jobs posted online, with most showing that the (fictional) applicant had been unemployed somewhere from one to 36 months. The résumés were all variations on a few standard templates that the researchers came up with. The duration of unemployment was randomly assigned to candidates of otherwise equal qualifications.

Over all, 4.7 percent of résumés resulted in the candidate’s being invited for an interview. But a candidate’s chances of being called back depended on how long he or she had been looking for work.

Candidates unemployed for just a month had a 7 percent chance of being invited for an interview. Those chances dropped off sharply with just a few more months of unemployment. After eight months of unemployment, the callback rate was just 4 percent. In other words, the chances of getting an interview fell about 45 percent from Month 1 to Month 8.

At that point, though, the callback rate pretty much flattened out.

Candidates unemployed for 8 months, 12 months and even 36 months all had about a 4 percent chance of getting an interview.

This makes me think that there may be an inherent thought of ZMPs by hirers, despite the fact that the resumes are essentially the same.

The Most Upbeat View of Sweatshops Ever

Other than the generally cheerful background music, Matt Zwolinski paints a very non-traditional view of sweatshops in a YouTube video (also linked through Bleeding Heart Libertarians).

The video leads to an interesting intra-blog debate about the legitimacy of sweatshop labor.

(follow the jump for more)

The Great Depression and Structural Unemployment

Responding to Paul Krugman’s article about Depression-era arguments for structural unemployment, Tyler Cowen presents some literature that suggests more structural unemployment during that time than meets the eye.

Another practical upshot is that you still can believe in labor market hysteresis, as presented by DeLong and Summers.  Without some analysis like the above, the DeLong/Summers claims are otherwise contradicted by American post-Depression productivity once joblessness lifted.  Where were the long-term scars?  Well, they were fixed but it wasn’t easy.  So the relevance of hysteresis can be saved, but we still are left with proper stimulus being very difficult to do, unemployment being quite sticky, and proper policy requiring lots of structural attention.  The Great Depression is evidence for all of those views, not against them.

Are we at maximum employment?

As a little retort to the Krugman op-ed j linked this morning. From Fed President Narayana Kocherlakota via The Wall Street Journal:

“I see [inflation] changes as a signal that our country’s current labor market performance is much closer to ‘maximum employment’ than the post-World War II U.S. data alone would suggest,” Kocherlakota said. “As I’ve argued in the past, appropriate policy should be responsive to such signals.”

Is unemployment really over 10%?

The Financial Times‘ Alphaville blog provides a chart showing an alternative measure of unemployment that currently has the UR at 10.3% making it essentially stagnant for two years. The chart is below; the implications are likely significant.

- Tyler

Is the federal government incentivizing a lack of education?

According the the chart below from a recent CBO report, the answer may be yes.

From the evidence in this chart, it appears that the private sector relatively significantly discounts education less than a bachelor’s degree and offers a relatively significant premium on professional and doctorate degrees. Conversely the federal government is much more consistent in pay differentials for different education levels.

- Tyler

Productivity Visualized

In this mornings AM Reads I linked an article from The Economist about American productivity. I wanted to follow that up by showing how the U.S. ranks in the developed world in productivity improvements. According to the OECD data displayed below, the U.S. growth rate from ’09 to ’10 ranked 12th in OECD countries.

Lincoln/Douglas Throwback: Public Sector Unions – Opening Statements

With our views from the left and center-right, we will take on the issue of public sector unions and how they influence the austerity measures being proposed by states (particularly in Wisconsin). The format for this “debate” will be opening statements (published below) with three questions of the opposing side, which will be answered in a follow-up/rebuttal/response post.

From the Center-Right:

$1,720 per person, or 4.6% of personal income (see page 6 of this Moody’s report). That is Wisconsin’s state debt spread out over every adult, child, senior citizen, man, woman, public employee, private employee, and unemployed person in the state. Wisconsin’s debt load is not the worst (that title goes to Connecticut at $4,859 per person) and it is certainly not the best (Nebraska is in the best debt position at $15 a head). Still, $1,720 for every one of Wisconsin’s roughly 5.655 million people is over $9 billion in total debt, and currently Wisconsin is fighting a budget deficit of over $135 million.

But to what extent are unions, and more specifically public sector unions, to blame? How much of the burden of deficit reduction should public sector unions bear?

Reality dictates that when cuts have to be made – and I do not think the argument for cuts has to be made right now, especially for states – leadership should start with the least necessary budgetary items. This applies to households, businesses, and governments alike; it is a fact of reality. In this case, that logic means defining the priority and economic effect of public sector unions.

From a center-right position, unions have become increasingly hard to justify.

In the time of “robber-barons” and the industrial revolution in America, the necessity of unions (mostly private sector in this case) is very apparent. One of the biggest reasons for this is asymmetric information. It was difficult, if not impossible, at the end of the 19th and beginning of the 20th century for workers to make employers compete for their labor. After all, it is (and should be) competition for scarce resources that drives the compensation (wages and benefits combines) levels offered to employees by employers – given certain basic condition standards and a fair flow of information. Unions, at that time, allowed employees to sit at the table and make employers compete for their resources.

Fast forward to today, information flows, while still imperfect, are exponentially better for workers. Their necessity has dwindled. It is not the result of a Randian, libertarian society that vilifies the worker as the tool of Marxism; the reduction in the importance of unions is indicative of an improved society. Just as no longer needing police would not necessarily indicate a crime riddled society but could actually mean a more peaceful, better society.

Today, unions are more of a political tool than anything. As soon as governors begin to propose cuts to unions, unions use their war chests to campaign against the elected official, the elected official is forced to give up all of his/her political capital or give into union demands. Additionally, as unions have become more and more entrenched, laws make it even more difficult for cuts to be made (New York’s laws are a great example from this New America Foundation article).

Wisconsin faces this challenge. Economic growth is stifled by automatic union dues from public employees, like teachers. The effect of these automatic dues is two-fold. First, the contributions represent funds that would otherwise enter the market through saving, spending, lending, borrowing, and any number of other market behaviors. Second, these contributions (direct from public sector pay checks and funded by tax dollars) enter the political world through union accounts that go to fund sympathetic campaigns (see this article from the Wall Street Journal). Furthermore, proposed legislation like The Employee Free Choice Act (i.e. card check) seems aimed more at increasing the power of union leadership rather than the workers these groups represent.

To be fair (and to preempt some of what Jake will likely say), Wisconsin’s Governor Walker is likely going to far and is definitely being too political rather than pragmatic or fair in his assault on public sector unions. His clearly preferential treatment of police and firefighter unions, which are loyal to the GOP, is highly inconsistent with his attack of other public sector unions. Honestly, Governor Walker seems more anti-labor than anything.

While I am not the biggest fan of unions, I do believe strongly in their right to exist in a democratic and capitalist society in an effort to promote transparency and competition.

With all of this in mind, I have to wonder:

1. Why shouldn’t public sector unions face steep cuts to help close the budget deficit?
2. Is there a clear positive economic impact of public sector unions?
3. At what point, does the legal entrenchment of unions become more of a hindrance than help to the workers unions are supposed to represent?

I look forward to what I know will be a well-reasoned argument by Jake; I hope that we can see beyond Wisconsin to the larger question of the current role for unions in America.

 

From the Center-Left:

There are plenty of legitimate economic arguments against unions, in both the public and private sectors. Unions certainly make the labor market less efficient – they increase costs while reducing liquidity (though the extent of which is not as great as you might think).  The people who make these arguments often believe the preeminent value of economic efficiency is self-evident.  That misses the greater point: It’s not about whether unions make labor markets less efficient, but rather whether they add a social value that exceeds their economic cost.

The broad consensus is that yes, in fact they do. They raise the standard of living among lower- and middle-class workers (both union and non). They make sure that labor laws are enforced. They defend workers from capricious termination and, if they are laid off, fight for adequate severance pay.  For these reasons and others, the federal government has protected the right of workers to unionize since 1936 and even pushed for its inclusion in the UN Declaration on Human Rights.

Of course, Tyler will say that we’re not debating unions in general – he already conceded their value – but only that savage beast known as public sector unions. Instead of negotiating with corporate management, the argument goes, public sector unions negotiate with democratically-elected leaders over taxpayers’ money. They’ll admit that the sharp edge of the profit motive leads to the occasional violation of workers’ rights by private firms, but governments – especially democratically-elected ones – are always just to their employees. This theory fails the test of history, but more importantly, it miscalculates the cost-benefit equation that govern contract negotiations.

The fact is, governments have the same incentives to skimp on wages and benefits that private firms do. After all, the less they pay, the more money taxpayers can keep in their pockets. And it’s those taxpayers who ultimately choose the chief negotiators of the labor contracts. Furthermore, balancing budgets through public sector layoffs and paycuts are much more popular than tax hikes during tough times (look no further than the NYT Mag’s hagiography of the teachers unions’ arch nemesis, Chris Christie.) Public employee unions counteract those wage-suppressing incentives on behalf of the teachers, firefighters, cops, sanitation workers, and others they represent.

I am perfectly happy to pay more in taxes to support their salaries, because I believe that offering attractive salaries and benefits is essential to the proper functioning of government services. As a consumer of those services, I want the people who work in government to be capable, competent, and effective. That makes government itself more capable, competent, and effective. To relate to Tyler in a concept he will understand, it’s the difference between choosing a fine bourbon like Woodford Reserve over Kentucky Gentleman. You will pay a little more, but you’ll sure be glad you did the next morning.

With that said, I believe arguments critical of this function of public sector unions can be valid.  There are also legitimate concerns over potential conflicts of interest and some of the unions’ demands. It all boils down to a value judgment that the elected leaders of state governments must resolve for themselves. Wisconsin, the first state to allow public sector collective bargaining, is currently reevaluating the balance between economic costs and social benefits – or at least that’s the genteel way to put it. A more accurate description would be that an opportunistic politician is attempting to kneecap his opponents’ allies for spite and political advantage. There’s no doubt that Democrats are typically more generous to public employees, a relationship that pays political dividends during election season on the ground and in their bank accounts. It’s no wonder that Republican Gov. Scott Walker is trying to bottle up their influence. The evidence of his malicious intentions is quite clear: despite the unions agreeing to the benefit cuts he demanded, Walker has persisted in his quest to strip their negotiating power (while conspicuously excluding GOP-friendly firefighter and police unions.)

Even though Tyler inexplicably continues to identify with a party represented by leaders of such nobility, I will give him credit for approaching this issue in good faith. To him, I pose these three questions:

1. Can a competitive labor market properly value public service professions such as teachers and policemen, especially in low-income and rural areas?
2. So-called “right to work” states that restrict public sector unionization are in no better fiscal shape, on average, than pro-labor states. How is assigning unions most of the blame for states’ deficits not a post hoc ergo propter hoc fallacy?
3. What is your opinion of the connection between union membership and income distribution? How do you weigh the social costs of high income inequality against the economic costs of collective bargaining?