Monday, September 5, 2011

Garret Jones, from the comment section

Garett Jones has a response to my post on his paper in the comment section that's owrth sharing. He writes:


Thanks for reading our survey-based paper
[full disclosure - I just skimmed through it]. Our separate interview paper has more information on how organizations say ARRA worked. Link to that in my name [that is here].

I'd claim, though, that comparing our "hired from unemployment" percentage to Bartik & Bishop's net job creation percentage is a misreading. Our "hired from unemployment" percentage is more comparable to Bartik/Bishop's *gross* job creation figure.

It's hard to go from gross to net--and B&B are only able to because they (fairly plausibly) assume the Hammermesh labor demand elasticity.

Another way to put this: Just as a government-subsidized gross hire isn't a government-subsidized *net* hire (B&B's point), so a government-paid gross hire isn't the same as a net increase in jobs. Some of those unemployed workers hired by government would have gotten jobs after a few more painful months of job search, as evidenced by the 4 million gross hires every month in the JOLTS survey."

This is an important point and is similar to the point I make about about broken window arguments here. He continues,

"A Mortensen-Pissarides steady state is a useful comparison: In that world, if the government starts hiring people when the economy is at the natural rate of unemployment, the government can of course hire lots of people at (or slightly above) the going wage. But it's creating zero net jobs: It's crowding out private employment one for one. High gross government hiring does not equal net government job creation.

It's important for stimulus proponents to decide how to tell whether the facts are more consistent with ARRA causing net job growth or causing mere gross job growth. Rothschild and I have offered some evidence at the organization level, where we focus on the primary effects of stimulus. We looked for signs of labor market tightness in ARRA-funded sectors.

This I don't understand. What is the value of looking at tightness in a particular sector? Tight sectors are growing sectors and attract workers from loose sectors. It seems to me that labor market tightness in a particular sector is much less useful of a concept than labor market tightness nationally.

Our survey paper gives a few forms of evidence for the tightness of the labor market in some ARRA-favored sectors:

1. Most organizations said it was as hard or harder to find good workers than before the crisis.

[This is an important clarification from Thoma on these sorts of arguments. We need to interpret interview responses with care and remember they don't always map on perfectly to our theoretical constructs. My co-author on the NBER paper interviews at firms a lot, and he has a lot of good "it's hard to find good worker" stories which - when probed - mean something completely different.]

2. New hires reported wage gains on average (driven by the job-shifters) and better benefits (across the board).

3. Our job-switching rate was similar to the (likely overstated) medium-term U.S. average. So good help was somewhat hard to find among the unemployed, even with twice the number of unemployed compared to the pre-crisis world.

This is broadly consistent with the hypothesis that ARRA was, on average, targeted at sectors of the labor market that were close to their steady state unemployment rate. At the very least, all three pieces of evidence point toward weaker net job creation, more supply-side crowding out.

[Again, it's not clear to me why Jones thinks this. Growing sectors pull resources from weak sectors. It's not clear that a tight sectoral situation necessarily leads to crowding out, particularly at a time like this. No, labor is not "fungible". But it's still substitutable.]

I hope we can agree that *if* future ARRA-style programs occur, they should focus on weak sectors of the labor market, with high, persistent rates of unemployment for well-qualified workers. I hope we can agree that targeting sectors with slack is important

On that last comment, there are three ways to approach fiscal stimulus (all closely related, of course) - as a jobs program, as a bond-creation mechanism, and as a demand creation program. I think it only makes sense to "create jobs in weak sectors" if you see it as the first sort of program, which I think is the weakest way of looking at a stimulus. If it's a bond-creation mechanism it doesn't matter where the money gets spent and there's no reason to think it oughta be concentrated in weak sectors. If it's a demand creation program we'd ideally like it to be as non-distortionary as possible. To me, that means give stimulus checks to everyone and unemployment benefits to the unemployed so they can buy what they demand (which the government does not and cannot know). It also means additional government spending should be spent on things government has a role in buying: education, health care perhaps, environmental protection, research, infrastructure, police protection, etc. Some of these - particularly education, health, etc. - are going to be what Jones describes here as "tight sectors". So? Manufacturing is going through a period of secular employment decline. Health and education are going through a period of secular employment growth. Exactly what is gained by getting net job growth in an industry that will likely shed those jobs once support is removed?

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