Wednesday, June 8, 2011

Casey Mulligan on seasonal employment again

The other week, Peter Boettke was pretty impressed with Casey Mulligan. I hope he reads F&OST before he is impressed with this morning's post from Mulligan. This time, Mulligan is once again making the claim that summer labor supply trends raise doubts about demand concerns. Lots of people work in the summer - labor supply increases in the summer - ergo, labor demand is apparently not a problem.

People - this is why we seasonally adjust data. Of course labor markets behave differently over the course of the year. Employers know there are labor supply increases during the summer, so they shift activities accordingly. The correct comparison is not Summer 2011 to Spring 2011 - it's Summer 2011 to Summer 2007. And the last time Mulligan wrote about summer jobs, he made this comparison across years, and you know what? It provided evidence for the Keynesian story. The economy has regular seasonal variations, just as it has regular regional variations and regular variations across skill levels. Noting those variations doesn't tell you anything about how the macroeconomy is doing.

Take a look at this labor market:

See - I can make wages go down and employment go up in the summer too. Does anyone think we should second guess Keynesian demand problems in this labor market? Does anyone agree with Mulligan that in this labor market demand policies are the "wrong advice"?

Seasonal cycles happen. This is why we seasonally adjust data. Nothing in this cycle - nothing at all - changes the Keynesian story. It's a data artifact and it's amazing to me that so much has been made of it by Mulligan.

UPDATE: Perhaps this is another way to put it: if you blur the supply lines in the labor market above together, all you've done is seasonally adjust the data. Statistical agencies produce that information all the time because people find that information useful. What happens if you blur the demand lines? You've just eliminated the business cycle. The empirical content of the supply trends that Mulligan is citing here is considerably lower than the empirical content of the demand trends.

1 comment:

  1. That was a Jaw-droppingly bad post on Boettke's part. If a rube like me can spot deceptive rhetoric and shabby reasoning on a first reading, there's no excuse for PhD's.

    I managed to secure a draft of Casey Mulligan's next column.

    -argosy (blogger is buggling up my login)
    1,000,000 Americans appllied for jobs at McDonalds during their hiring day--- for 50,000 mostly part-time jobs. And this at a well known market leading progressive employer with enlightened free-market attitudes toward product and process alike. What is the problem in America today, you may well ask?

    Clearly the problem here is that Americans are not willing to work for available wage/benefit packages. It's not enough to remove extended unemployment benefits. What we need to do is increase the cost of survival until more labor is brought on to the market at lower wages, thus increasing employment.

    some have proposed gradually increasing taxes on weekly incomes below $2000/week, until more labor is brought on to the market as subsistence requirements brush up against falling net incomes, reducing wages to an affordable level and increasing employment. Close, but no cigar.

    It's true that the low-income tax would target the right demographic: the bottom 95% of Americans who have been tempted to quit their jobs and take 50% pay cuts by the easy and plentiful handouts for panhandlers. Availability of unemployment benefits have only worsened the crisis. However, this strategy only reaches people who currently have an income of their own. Thus a man with 2 children and a stay at home wife will be paying no more in taxes than a similar man with no family. This gets the incentives all wrong. A tax on food, shelter, medecine, and clothing, will correctly target large families with lots of idle labor that could be brought onto the market.

    Along with co-ordinated programs shutting down thrift stores and discount grocers in select neighborhoods, this policy will soon lead to a return to prosperity, probably no later than jan 19th, 2012, provided we have a Republican in the white house.


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