So on first glance, these jobs numbers are nothing but bad. 96,000 new jobs with downward revisions on the two previous months. So as far as description is concerned, it looks like weak growth continues to carry the day. So “what does it mean?” Well, it means we aren’t suddenly in a booming economy; things continue to peter along.
“What does it mean” has another interpretation, though: what will happen as a result? The upshot as far as I can tell?
- Undecided voters will mostly hear 8.1% unemployment and think these are good numbers.
- QE3 is gonna happen.
- The fire under the Republicans to ensure the “fiscal cliff” doesn’t occur will continue to burn hotter, meaning Obama might be able to make some headway on either stimulus or deficit reduction or both in a second term.
Certainly Nate Silver at fivethirtyeight has stressed that the jobs numbers will have significant consequences for the election: good numbers and Obama’s sure to win; bad enough numbers and he’s out. The Bernanke is relying on these BLS numbers, among others, to try to decide what to do. So I was trying to think about what to think about the actual consequences of the numbers. I’m just freewheeling here, but I think there might be some interesting and counter-intuitive results.
One place to start is to think about the two numbers: the unemployment rate is the one that is most readily interpreted and most likely to be noticed by others. The actual jobs number is wonkier. So if you’re a high-information voter, the jobs number sinks in, whereas if you’re only marginally engaged, the unemployment number is the one you’re likely to hear.
The electorate is unusually polarized, so high-information voters are unlikely to be swayed much one way or the other. Low-information voters, on the other hand, are more likely to be A. uncertain about how to feel about Obama’s economic record, and B. moved by unemployment numbers rather than the jobs numbers. So while strong numbers would have been strictly preferable to weak numbers for Team Obama, it’s probably better politically to have weak jobs and strong U3 numbers than the reverse.
From a fiscal policy perspective this is all to the good. I’m of the opinion that we should be doing something to prop up aggregate demand, at least for a year or two. Absent that, we should hold spending constant and not raise taxes on those with the highest propensity to consume. A Republican administration, if I’m honest, seems just as likely as a Democratic administration, to expand the size of government. Eventually, though, it’d be a good idea to contract the size of government, and the optimal way to do that cannot possibly be to deny any discussion of tax increases. Consumer sovereignty, people! If they wants their Social Security and their Medicare and their Medicaid, then let’s raise taxes to pay for it. Being beholden to Grover Norquist is both bad politics and bad policy. So it seems that this is, on net, a good day for the economic future of America.
What about monetary policy? I get the sense from the current Fed that they don’t actually particularly like their jobs; if they did, it seems like they’d get creative about how to use monetary policy to get the economy moving faster. Instead, the spectre of inflation seems like such a looming figure in their collective psyches that they’re unwilling to consider more radical action. (This might be another example of the cognitive capture of government policy by Wall Street, by the way.) In any case, the Fed is definitely more focused on the jobs number than U3, because hell, in policy, ideally, the actual state of the world is what matters, not that a quirk of the measurement led to a lower denominator. This means QE3 will definitely happen. I’d love it if we could finally go to NGDP targeting, but like I said, they don’t seem to like their jobs enough to try something new.
Finally, Justin Wolfers notes that it’s all about low-skill workers. The noteworthy part here is that the last 40 years have been a case study in skill-biased technological change, so that the productivity of skilled workers has skyrocketed while the productivity of unskilled workers has remained the same. This is effectively like an increase in supply for skilled work relative to unskilled work. In principle, it seems to me that this should make skilled work cheap, thus depressing wages for skilled work relative to low-skilled work. That said, low-skilled work has been made very cheap by the availability of Chinese labor to the worldwide labor market.
It doesn’t seem clear to me that demand for low-skill work has declined that much more than demand for skilled work; on the contrary, I’d think that skilled work would generally be more of a luxury, but that’s just a guess. In any case, it’s still unclear to me what’s driving low-skill unemployment. Is it wages that are stuck too high? Is it foreign competition? A part of me has thought for a long time that it’ll take rising Chinese wages to put a bottom back on our economy. This rough transitional period might just be that in practice. If that’s what it is, then we need Chinese growth, and fast.