There have been several related reports and articles in the last few days about adjustments that are going on as the economy goes into recession. New data is also available to shed light on movements in wage costs and labour productivity which can help us better understand what is going on at present and provide comparisons with the now perennial question – is this recession different to that experienced in 1991. Today I decided to write about these matters as an on-going investigation into what is happening out there in the labour market. This is sort of my other main interest in economics alongside the development and explication of modern monetary theory. Today we find that the neo-liberal dumbing down of our labour market may have saved a few jobs – but at what cost!
Today I have been examining bankruptcy data. The popular notion is that bankruptcy rises during a recession. Many are arguing that this recession will drive higher rates than ever because of the extent of household debt. These are all conjectures that form part of the popular folklore but rarely formally investigated. So this blog summarises some introductory work I have been doing to investigate this notion more fully. It will at least settle some issues.
Today among other things I have been examining the hours data more closely to further highlight the difference between the 1991 recession and our current woes. The comparison is interesting and reveals a lot about how labour markets adjust. It also provides some scope to develop further insights into total labour underutilisation. However, while the current labour market state requires an urgent further injection of net public spending the circumstances are different to what we faced in 1991.
Here is some twisted logic if you ever saw it. Sydney Morning Herald main economics writer Ross Gittins wrote yesterday that the Opposition leader’s scaremongering about the build-up of debt is a faux concern and amounts to hysteria. So he sets about soothing us with some explanation. But it is the explanation that leaves out some of the more important insights which if known would alter the way the reader understood the article and the issue being discussed.
Welcome to the billy blog Saturday quiz. The quiz tests whether you have been paying attention over the last seven days.
See how you go with the following five questions. Your results are only known to you and no records are retained.
Today I have analysing the ABS Gross Flows data which reveals the underlying dynamics in the labour market that combine to give us the unemployment rate and other labour market aggregates. The current downturn is revealing itself to be quite different (so far) to the 1991 recession. While the chances of an unemployed person finding a job have fallen in a similar way to 1991, the chances of an employed person losing their job has not deteriorated markedly in the current recession, in contradistinction to what happened in 1991. The difference is in the hours data that we analysed yesterday. In 1991, the labour market contracted largely via unemployment whereas this time around it is contracting via underemployment. The flows data also reveals fundamental differences between Australian and the US in the sense that the American labour market is contracting more traditionally at present compared to our “underemployment” recession.
Today’s Australian Bureau of Statistics Labour Force data confirms the trends that have been evident in the broader data series in recent months that the economy has slowed dramatically but hasn’t yet crashed. While unemployment is rising the main worry is the rapidly increasing underemployment. It is also been a common theme in recent months that firms are hoarding labour. While the new data series that the ABS has published today (hours worked) suggests that this is occuring, most of the hours adjustment in the labour market is arising from the loss of full-time employment in manufacturing and elsewhere. In other words, it is a sectoral story rather than a within-firm story. So while the unemployment rate is stable, there is nothing to cheer about in this data.
I am often sent E-mails asking me to explain succinctly (what my other explanations are not!) how public deficits finance saving. What does it mean? How does it work in a macroeconomic system? What is the difference between automatic stabilisers and discretionary budget dynamics? What would have happened if the government had not have increased the growth in spending? All these sorts of questions. So this short blog – to make up for yesterday’s ridiculously long blog – will cover those issues. It should clear up any outstanding issues about why deficits are important to underwriting growth.
Yesterday, regular commentator JKH wrote a very long comment where he/she challenged some of the statements and logic that modern monetary theorists including myself have been making. While I don’t want to elevate one comment to any special status – all comments are good and add to the debate in some way – this particular comment does make statements that many readers will find themselves asking. In that sense it is illustrative of more general principles, points etc and so today’s blog provides a detailed answer to JKH and tries to make it clear where the differences lie. Some of these differences are at the level of nuance but others are more fundamental.