The Atlanta Fed's macroblog provides commentary and analysis on economic topics including monetary policy, macroeconomic developments, inflation, labor economics, and financial issues.

Authors for macroblog are Dave Altig, John Robertson, and other Atlanta Fed economists and researchers.

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August 16, 2005

Max Sawicky, Tom Walker, and I Discuss Labor Market Slack...

... and, amazingly, disagree.  It's the latest edition of the Wall Street Journal Online Econoblog.  Actually, I think I may have sent an incompletely copied and pasted version of my last comment, so here is my closing comment in its totality:

I suspect that these debates are quite frustrating to onlookers, as they ultimately lead down the “is”/ “is not” path of argumentation. But there is a reasonable, even if not satisfying, reason for this: The data just won’t confess. Tom and Max are smart guys, and I am doing my best. We look at the same information, and, in good faith, come to different conclusions. And policy making is, all too often, a leap of faith. (If you would like to revel in documentation of this claim, check out this post at the New Economist.)

Perhaps it is because I am a child of the 1970s -- the decade in which I became familiar with the larger world around me – that my instinct is to respond to this type of uncertainty with a certain reluctance to espouse activist policies unless the evidence pretty clearly speaks to the need. To my eye, that evidence is lacking for the moment.

Now Max and Tom might argue that, in the spirit of these comments, the conservative approach would be, for example, to ease up on the funds rate increases for now. They would find a lot of support for this among bloggers that I respect a lot – Angry Bear, James Hamilton, and William Polley, to name just a few. Mark Thom, on the other hand, emphasizes a different take on the cost-benefit analysis that works to the opposite conclusion. And so it goes.

 But let me wholeheartedly agree with Max and Tom’s plea to “look at the long term trends.” In not too many years the particulars of this business cycle will be a distant memory. The exact level at which the federal funds rate “pauses” will be of little matter. I really suspect the same will be true of the federal deficit. What will matter is the set of policies that are put in place to maximize human capital development and unleash the seemingly boundless potential of the American people. With that in mind, your next stop should be this interview with James Heckman, who discusses the really big potatoes in thinking about how workers fare. 

UPDATE: Calculated Risk provides his own metric for what constitutes reasonable labor market growth for President Bush's second term, and promises to update the tracl record monthly.  (So far, things are looking pretty decent.)

UPDATE: The correct version of my last post is now up at Econoblog.

August 16, 2005 in Labor Markets | Permalink


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» Job Growth: Bush's 2nd Term from CalculatedRisk
The online world receives another treat today as Dr. Altig of Macroblog discusses the labor market with MaxSpeak's Max Sawicky and Tom Walker. Check out the WSJ Econoblog: Debating Job-Market 'Slack'. [Read More]

Tracked on Aug 16, 2005 10:39:47 PM


I think both you and your counter-bloggers focus too much on the supply side of the labor market rather than the demand side. Actual decisions about wages and prices are usually made by firms, not by workers (and almost never by unemployed workers – although theoretically one could try to get a job by undercutting the offered wage). From what I have seen of demand indicators, they argue for a very high level of slack.

Help wanted advertising – even after accounting for the increased role of the Internet – appears by my analysis to be lower even now than it was at the depth of the 1991 recession. (I use the Conference Board’s index, in combination with the Monster Employment Index, with the relative weighting as of October 2003 determined by market shares for Internet and newspaper advertising in that year. Prior to that date I assume linear growth of Internet market share starting at 0 in 1997.) See the chart at

Posted by: knzn | August 17, 2005 at 08:43 PM

knzn -- Nice chart. To be fair to Max and Tom, I don't think they were focusing as much on the supply side as I was. If I might be so bold as to represent their position, I think they would say that particpation rates are low due to very weak demand and poor job market opportunities.

Just to clarify, my position is not that the labor market has been robust, or that it has been innacurate to characterize it as weak for good chunks of time subsequent to the end of the recession. My point is that I am skeptical about the position that any weakness has been the result of deficient demand that is amenable to being fixed by monetary policy.

Posted by: Dave Altig | August 19, 2005 at 07:40 AM

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