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The Atlanta Fed's macroblog provides commentary on economic topics including monetary policy, macroeconomic developments, financial issues and Southeast regional trends.

Authors for macroblog are Dave Altig and other Atlanta Fed economists.


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June 28, 2012


Young versus mature small firms seeking credit

The ongoing tug of war between credit supply and demand issues facing small businesses is captured in this piece in the American Prospect by Merrill Goozner. Goozner asks whether small businesses are facing a tougher borrowing environment than is warranted by current economic conditions. One of the potential factors identified in the article is the relative decline in the number of community banks—down some 1,124 (or 13 percent of all banks from 2007). Community banks have traditionally been viewed as an important source of local financing for businesses and are often thought to be better able to serve the needs of small businesses than large national banks because of their more intimate knowledge of the business and the local community.

The Atlanta Fed's poll of small business can shed some light on this issue. In April we reached out to small businesses across the Sixth Federal Reserve District to ask about financing applications, how satisfied firms were that their financing needs were being met, and general business conditions. About one third of the 419 survey participants applied for credit in the first quarter of 2012, submitting between two and three applications for credit on average. As we've seen in past surveys (the last survey was in October 2011), the most common place to apply for credit was at a bank.

For the April 2012 survey, the table below shows the average success of firms applying to various financing sources (on a scale of 1 to 4, with 1 meaning none of the amount requested in the application was obtained, and 4 meaning that the firm received the full amount applied for). The table also shows the median age of businesses applying for each type of financing.

120628_tbl

The results in the table show that for credit applications, Small Business Administration loan requests and applications for loans/lines of credit from large national banks tended to be the least successful, whereas applications for vendor trade credit and commercial loans/line-of-credit from community banks had the highest average success rating.

Notably, firms applying for credit at large national banks were typically much younger than firms applying at regional or community banks. If younger firms generally have more difficulty in getting credit regardless of where they apply, it could explain why we saw less success, on average, among firms applying at larger banks.

To investigate this issue, we compared the average application success among young firms (less than six years old) that applied at both regional or community banks and at large national banks, pooling the responses from the last few years of our survey. The credit quality of borrowers is controlled for by looking only at firms that applied at both types of institutions. What we found was no significant difference in the average borrowing success of young firms applying for credit across bank type—it just does seem to be tougher to get your credit needs met at a bank if you're running a young business. Interestingly, we also found that more mature firms were significantly more successful when applying at regional or community banks than at large national banks—it seems to be relatively easier for an established small business to obtain requested credit from a small bank.

While this analysis did not control for other factors that could also affect the likelihood of borrowing success, the results do suggest that Goozner's question about the impact of declining community bank numbers on small business lending is relevant. If small businesses are generally more successful when seeking credit from a small bank, will an ongoing reduction in the number of community banks substantially affect the ability of (mature) small businesses to get credit? More detailed insights from the April 2012 Small Business Credit Survey will be available soon on our Small Business Focus website, and we will provide an update when they are posted.

Photo of John RobertsonBy John Robertson, vice president and senior economist,

 

and

Photo of Ellyn TerryEllyn Terry, senior economic research analyst, both of the Atlanta Fed's research department



June 28, 2012 in Banking, Economic Growth and Development, Saving, Capital, and Investment | Permalink

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The table also reveals the average age of companies implementing for each kind of funding.

Posted by: factoring company | August 29, 2012 at 03:03 AM

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June 25, 2012


Do falling commodity prices imply disinflation ahead?

Cost pressures at the manufacturing level appear to be easing—at least, so say the manufacturers in our Business Inflation Expectations survey. In June, manufacturers reported that unit costs were up only 1.3 percent over the last 12 months, a full percentage point below their assessment at the end of last year. Retailers, on the other hand, report unit cost increases of 2.1 percent, down a bit from May, but 0.3 percentage points higher than in December.

We put a special question to our panel in June that may shed a little light on these patterns. When we asked firms to tell us what has been driving their unit costs over the past 12 months, manufacturers saw considerably less pressure coming from their cost of materials compared with other firms. Perhaps this discovery isn't very surprising. After all, commodity prices have been falling pretty sharply of late, and these costs are especially influential to manufacturers' assessment of the cost environment. (Indeed, in response to a special question we asked our panel in March, manufacturers ranked materials costs as the number-one influence on their pricing decisions.)

Does the fall in commodity prices mean we can expect a pass-through of these lower costs to consumers?

Perhaps. There's certainly a strong intuitive appeal to the "pipeline" theory of inflation. Here's the idea as described by the Bank of England (BOE):

"Consumer prices…can be thought of as the end of a 'pipeline' of costs and prices. The final price will be made up of many different components of cost as well as the retailer's profit or margin… Prices at one stage of the pipeline become costs for the next stage…"

But economists who have looked down the inflation pipeline haven't found flows, but rather trickles. Years ago, Todd Clark of the Cleveland Fed put it this way while he was at the Kansas City Fed: "the empirical evidence… shows the production chain only weakly links consumer prices to producer prices."

So the "inflation pipeline" theory isn't that simple, as the BOE goes on to explain:

"The [pipeline] idea is a simplification… Prices are determined by the interaction of supply and demand. If the cost of raw materials rises, for example, producers or retailers might accept lower profit margins rather than raise their prices. They are more likely to do this if demand is weak or because of competition. The degree of competition in markets can affect how much cost increases are passed on to consumers."

Investigations into what might be obstructing the flows through the inflation pipeline have taken several approaches, including the one suggested by the BOE above: Firms may vary their markups (or margins) to damp the influence of costs on prices as they pass from one stage of production to the next. This idea has become a cause célèbre in macroeconomics and a key element of something called the New Keynesian Phillips Curve.

And so we've been keeping our eyes on how our panel assesses their margins, and we note something pretty striking. That is, margins are rising, but primarily for retailers. Indeed, as our panel sees it, retail margins are getting pretty close to returning to normal. Manufacturers, however, still see their margins as well below normal.

Expanding margins, then, may slow the flow of falling commodity prices through the inflation pipeline. Manufacturers may take the fall in commodity prices as an opportunity to improve their woeful margins. And if they do pass these cost savings on down the production chain, it still might not hit consumers' wallets if retailers continue to increase their margins. (Based on our survey, that's what seems to have been going on lately, anyhow.)

For other insights from the June Business Inflation Expectation survey, see the Inflation Project on our website.

Mike BryanBy Mike Bryan, vice president and senior economist,

Laurel GraefeLaurel Graefe, economic policy analysis specialist, and

Nicholas ParkerNicholas Parker, economic research analyst, all with the Atlanta Fed

June 25, 2012 in Business Inflation Expectations, Inflation, Pricing | Permalink

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June 22, 2012


Employment growth and the FOMC Summary of Economic Projections

Here at macroblog we are always keen for an excuse to play with the Atlanta Fed's Jobs Calculator, and Wednesday's release of the Summary of Economic Projections (SEP) from the most recent meeting of the Federal Open Market Committee (FOMC) provides the perfect opportunity. The SEP, as you know, offers up three-year (and longer-run) projections of growth in gross domestic product (GDP), inflation measured by the personal consumption expenditure index (both headline and core), and the unemployment rate.

The SEP does not directly provide information on employment growth, and each of the 19 FOMC participants among the seven governors and 12 Federal Reserve Bank presidents will have their own views about how all the dots connect between GDP growth, unemployment, and job creation. I don't presume to speak for any of them, but with a few assumptions we can get a ballpark sense of how the range of unemployment rate projections might map into payroll job changes.

Assume, for example, that the labor force participation rate—the share of the working population that is either employed or actively seeking work—remains at its May level of 63.8 percent through 2014. In this case, the "central tendency" range of unemployment rate projections implies the following:

Hypothetical employment gains and unemployment rate projections

As a frame of reference, here is the recent employment record in the United States:

The recent payroll eomployment record

Overall, the hypothetical job growth based on SEP projections looks reasonably consistent with the employment experience of the last year and a half or so. If you yourself are inclined to think that the 2011 experience or the 12-month trend represent the most likely pace for the job growth going forward, you would probably find yourself in agreement with the lower unemployment numbers in the SEP. If you are convinced that the past three months represent a persistent downshift in the pace of job creation, you probably align with the higher end of the projections.

All of these calculations depend on my assumption about the labor force participation rate, and we along with many others have been warning that a constant participation rate may not be in the cards. Interested readers can go to the calculator and plug in their own participation rate assumptions and see how the resulting jobs numbers change. Our sense is that the participation rate is most likely to rise, which would count as a risk that the calculations above understate the job growth needed to hit the indicated ranges for the unemployment rate. On the other hand, some have argued that the expiration of extended unemployment benefits will actually lower the participation rate, as some people will simply drop out of the labor force. Declines in the participation rate would lower the job creation needed to support the unemployment rate projections in the SEP.

We'll see, but barring the participation complication, the unemployment rate projections on their face look pretty consistent with the same sort of progress on the job creation front that we have seen over the past couple of years. For better and worse.

David AltigBy Dave Altig, executive vice president and research director at the Atlanta Fed

June 22, 2012 in Employment | Permalink

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June 13, 2012


The armchair Fed historian

I enjoy researching economic history—some of my work with Steve Quinn on early central banking is here, here, and here.

The only problem with historical research, though, is that it tends to involve some real work—long hours spent with dusty archival volumes, consumption of lots of coffee and antihistamines, and a steady hand on the digital camera.

Just recently—and somewhat belatedly—I became aware of a Google application (thanks to Benjamin Guilbert's blog) that lets would-be economic historians breeze over the rough stuff and do some interesting research from their own computer keyboards. The application is called Ngrams, and here's how it works.

Basically, Ngrams counts occurrences of words in books that have been scanned by Google into its Google Books database. It then plots out the frequencies of these words as annual time series. These plots can then be used to measure how interest in a topic varies over time—to construct "cultural histories."

There are some limitations to this technique, mostly related to unavoidable issues in Google's database. For example, the dataset I chose to work with covers only English-language publications and stops in mid-2009. (See the Ngrams website for more detailed information.)

The six charts below represent a first attempt to use Ngrams to delve into the cultural history of the Federal Reserve.

Question 1: How popular is the Federal Reserve as a discussion topic compared with other central banks?

  • Search terms: Bank of England, Federal Reserve, Reichsbank, Bundesbank, Bank of Japan
  • Time period: 1900–2008


  • My interpretation: almost from its beginning in 1913, the Federal Reserve has been the primary focus of English-language writing on central banks.

Question: 2 The Fed was founded as a means to counteract banking panics. What has been the impact of the Fed on the discussion of panics?

  • Search term: bank panic
  • Time period: 1866–2008


  • My interpretation: that bank panics were widely discussed in the wake of three National Banking Era panics in 1873, 1893, and 1907, no surprise. Interest in bank panics peaked following the widespread bank failures of the early 1930s. This topic became less popular after World War II, but interest reawakened with the numerous savings and loan failures of the 1980s and early 1990s.

Question 3: One of the early policy goals of the Fed was to improve the efficiency of the check payment system. When did use of checks become the norm for ordinary Americans?

  • Search terms: pay envelope, pay check, paycheck
  • Time period: 19002008


  • My interpretation: in 1920, most people did not have checking accounts and were paid in envelopes stuffed with cash. By 1960, most households had checking accounts and were paid by "pay check," later contracted to "paycheck."

Question 4. What has been the impact of the Fed on people's concerns about inflation and unemployment?

  • Search terms: unemployment, inflation
  • Time period: 1900–2008


  • My interpretation: interest in unemployment shot up during the Great Depression, fell back in the postwar years, but resurged in the 1970s. Discussion of unemployment then falls steadily to the end of the sample in 2008. Inflation was rarely discussed until the United States left the gold standard in 1933. Interest in inflation remained below unemployment until inflation began to accelerate in the 1970s. Since about 1980, interest in these two topics has been almost identical.

Question 5: In the mind of the public, which policy goal should the Fed be most concerned with: price stability, financial stability, or employment?

  • Search terms: price stability, financial stability, Phillips curve (as an imperfect proxy for "employment"; note that the original article by William Phillips appeared in 1958)
  • Time period: 1900–2008


  • My interpretation: financial stability was paramount until after the 1951 Treasury-Fed Accord. Price stability then takes center stage until the turn of the 21st century but by 2008 had converged with financial stability. Interest in the Phillips curve seems to have peaked in the early 1980s.

Question 6: What has been the impact of two "big ideas" on monetary policy, proposed by Robert E. Lucas (1976) and John B. Taylor (1993)?

  • Search terms: Lucas critique, Taylor rule
  • Time period: 1970–2008


  • My interpretation: in his 1976 paper, Lucas argued that there were limits on the usefulness of statistical relationships (the Phillips curve in particular) in monetary policymaking. Partly in response to the Lucas critique, Taylor in 1993 proposed that central banks follow a simple rule in setting short-term interest rates. Interestingly, discussion of the Lucas critique peaked around the time of the publication of Taylor's paper. Interest in the Taylor rule was still growing at the end of the sample in 2008.

You may or may not agree with the choice of search terms or the interpretations of the search results, but you are welcome to conduct your own historical research with the same application—all from the comfort of your armchair, no digital camera required. We'll have more of these cultural histories to share in later posts.

Photo of Will RoberdsBy Will Roberds, research economist and senior policy adviser at the Atlanta Fed



June 13, 2012 in Employment, Federal Reserve and Monetary Policy, Inflation, Monetary Policy | Permalink

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That is a fantastic tool! Thanks for sharing. I especially found your search on the Lucas critique vs. Taylor rule surprising.

Posted by: Miraj Patel | June 13, 2012 at 02:24 PM

great post!

Posted by: dwb | June 13, 2012 at 06:51 PM

This is indeed a cool post. Glad that you shared this. thanks!

Posted by: business consulting | June 14, 2012 at 01:28 PM

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June 11, 2012


Fed purchases of government debt: Flow-share versus stock-share

In last Friday's entry to his Economics One blog, Stanford Professor John Taylor reiterated an observation he made a week earlier in a June 1 Wall Street Journal op-ed: In fiscal year 2011, the Federal Reserve, largely as a result of its second large scale asset purchase program (or "QE2"), purchased a quantity of Treasury debt equivalent to 77 percent of all the debt issued to the public by the federal government. In his blog post Taylor refers to this as an "amazing percentage" and in the Wall Street Journal piece lumps it in with a collection of other policies that he views as problematic:

"... the discretionary stimulus packages and exploding debt, the regulatory unpredictability associated with ObamaCare and Dodd-Frank, which includes hundreds of rules still waiting to be written, and the unprecedented quantitative easing through which the Federal Reserve bought 77% of new federal debt in 2011."

The 2011 figures cited by Taylor do reflect, in dollar terms, a large increase in the Fed's Treasury purchases. As he notes, the 77 percent represents an increase of $853 billion in Fed holdings over a $1,109 billion expansion in publicly held government debt. Prior to last year, the largest dollar increase in Federal Reserve holdings of Treasury securities over a single year was $278 billion, in fiscal year 2009 (equivalent to 16 percent of the record increase in publicly held debt of $1,741 billion). The next three largest increases were $70 billion (32 percent), $52 billion (14 percent), and $44 billion (12 percent) in fiscal years 2002–04 (in that order).

So, in historical terms and absolute dollar terms, the 2011 share of the debt flow was quite large. But does it represent a significant change in economic terms? In their review of the evidence regarding the effects of earlier central bank asset purchase programs in the United States and elsewhere, Sharon Kozicki and her Bank of Canada colleagues make this observation (emphasis added):

"The effectiveness of unconventional monetary policy measures depends on several factors. Measures appear to have been effective (i) when targeted to address a specific market failure, focusing on market segments that were important to the overall economy; (ii) when they were large in terms of total stock purchased relative to the size of the target market; and (iii) when enhanced by clear communication regarding the objectives of the facility."

Professor Taylor's calculation focuses on the flow of debt issuance and who purchased it, and we wouldn't completely discount the proposition that flows of purchases can be important. But the accumulated evidence suggests to us that we should be really thinking in terms of something like the stock or accumulated total of Fed purchases relative to the size of publicly held Treasury debt, as the passage from Kozicki and coauthors indicates. That calculation produces a Federal Reserve share of about 16 percent of publicly held Treasury securities for fiscal year 2011, which is up sharply from the 8–10 percent levels seen during the 2008–10 period but very similar to the share of Treasury securities held by the Federal Reserve during the years 2000 through 2007.

We obviously would not conclude from this that monetary policy was less accommodative in the past several years than it was prior to the crisis. In 2009 and 2010 asset purchases were dominated by the accumulation of agency-issued mortgage-backed securities. We would want to measure the stance of monetary policy with reference to the Fed's share of a broader set of assets, an idea that was introduced in a previous macroblog post.

But whether one prefers to think in terms of stock-share or flow-share, thinking in terms of ratios does highlight an important part of the policy environment of the moment. Harvard professor and former Treasury Secretary Lawrence Summers has, for example, suggested that the federal government issue more longer-term debt in order to support government spending at a low cost. Because both QE2 and the more recent maturity extension program were targeted at reducing the holdings of longer-dated Treasury securities that would otherwise be held by private investors, the effectiveness of the Fed's actions is sensitive to the type of debt management actions advocated by Summers (as this paper nicely explains).

More generally, if the Fed's share of publicly held debt is a key element in determining the degree of monetary policy accommodation, changes in the level and composition of outstanding government (or agency) debt may amplify or mitigate the effects of central bank asset purchases. In normal times we wouldn't think too much about this impact because explicit changes in the funds rate would swamp any effects of asset share, which in any event would only evolve gradually. But with the funds rate at the zero bound, asset share and composition take on more importance.

In the shorter term, changes in the magnitude of federal government may not have too large of an independent impact on the stance of monetary policy, although it is noteworthy that current projections indicate the Treasury will sell about $1,450 billion of debt to the public in fiscal year 2012, and $1,060 billion in 2013. In addition there is this, from today's edition of The Wall Street Journal's Real Time Economics:

"The U.S. Treasury intends to continue to gradually extend the average maturity of the securities it issues—a tactic that locks in borrowing costs but potentially dilutes the impact of a Federal Reserve policy intended to boost the economy."

In such an environment, it is probably good to remember that standing pat with central bank asset purchases does not necessarily mean standing still with monetary policy.

David AltigBy Dave Altig, executive vice president and research director at the Atlanta Fed, and



John RobertsonJohn Robertson, vice president and senior economist in the Atlanta Fed's research department

June 11, 2012 in Federal Reserve and Monetary Policy | Permalink

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Excellent piece chaps,

One minor and boring copy edit note:

"In fiscal year 2011, the Federal Reserve, largely as a result OF its second large scale asset purchase program"

The 16% figure is interesting as it is much lower than the Bank of England's 30% (or thereabouts) and not that far either from Japan's (which is lower, but which will likely get in line at about 15% once the asset purchase programme is completed).

Claus

Posted by: clausvistesen | June 12, 2012 at 04:48 AM

Curious as to whether all this Fed interest is leading to increased Federal Reserve hiring and spending. I know the Fed does kick back some money to the treasury, and I assume that is after costs, which I guess could be endogenous. Other Fed revenue is still check clearing? What is the estimate of the inflation tax over this period?

Posted by: pete | June 18, 2012 at 12:09 PM

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June 07, 2012


The skills gap: Still trying to separate myth from fact

Peter Capelli has looked at the skills gap explanation for labor market weakness and sees more myth than fact:

"Indeed, some of the most puzzling stories to come out of the Great Recession are the many claims by employers that they cannot find qualified applicants to fill their jobs, despite the millions of unemployed who are seeking work. Beyond the anecdotes themselves is survey evidence, most recently from Manpower, which finds roughly half of employers reporting trouble filling their vacancies.

"The first thing that makes me wonder about the supposed 'skill gap' is that, when pressed for more evidence, roughly 10% of employers admit that the problem is really that the candidates they want won't accept the positions at the wage level being offered. That's not a skill shortage, it's simply being unwilling to pay the going price."

To some extent, the issue is semantic:

"But the heart of the real story about employer difficulties in hiring can be seen in the Manpower data showing that only 15% of employers who say they see a skill shortage say that the issue is a lack of candidate knowledge, which is what we'd normally think of as skill. Instead, by far the most important shortfall they see in candidates is a lack of experience doing similar jobs. Employers are not looking to hire entry-level applicants right out of school. They want experienced candidates who can contribute immediately with no training or start-up time..."

In the language of economists, Capelli is defining skill as the possession of generalized human capital, while businesses are defining skill as the possession of firm- or job-specific human capital. In more familiar language, Capelli appears to be focused on innate skill levels and education, while businesses are looking for the types of skills that would be attained through past on-the-job training. In even more colloquial language, Capelli wants businesses to appreciate book-learning, and businesses prefer those who have already survived the school of hard knocks.

We have recently completed our own version of the Manpower survey Capelli references. Our results are based on the responses of about 100 businesses in the Sixth Federal Reserve District represented by the Atlanta Fed, and we do not claim that they are conclusive. But we do think they are instructive.

Of those firms that said they experienced an increase in hiring difficulty over the last year, our poll respondents confirm the notion that businesses are looking for candidates with specific skills:


The lack of technical skills is the only factor that really jumps out as an issue that businesses have with the pool of job applicants. We often hear anecdotal complaints about job seekers' lack of "soft skills," or the difficulty in finding applicants who can pass required background checks. But only 14 percent of all selections indicated too few applicants with required interpersonal skills, and only 7 percent indicated a problem with applicants passing screening requirements like drug-use or credit checks.

On the other hand, our poll found scant support for Capelli's claim that businesses are "unwilling to pay the going price." Only 9 percent of respondents reported that too few applicants would accept the offered compensation package.

Despite the fact that we see some evidence consistent with skill mismatch, it is far from clear that this issue is the smoking gun that explains the current anemic state of job growth. When asked if a dearth of skilled applicants is a persistent problem, our survey respondents overwhelmingly answer "yes." But when asked if they have had more difficulty hiring over the past 12 months, the overwhelming majority answered "no":


Even among the minority of businesses that report recent hiring difficulties, only half indicate that this difficulty is restraining growth:


We infer a couple of lessons from all of this information. First, it does appear that there is a long-term skill level problem in the U.S. economy. Adopting Capelli's definition of skill does not mean the existence of skill mismatch is a myth.

But turning to the short run, we've been pretty sympathetic to structural explanations for the slow pace of the recovery. Nonetheless, we have yet to find much evidence that problems with skill-mismatch are more important postrecession than they were prerecession. We'll keep looking, but—as our colleagues at the Chicago Fed conclude in their most recent Chicago Fed Letter—so far the facts just don't support skill gaps as the major source of our current labor market woes.

David AltigBy Dave Altig, executive vice president and research director at the Atlanta Fed, and



John RobertsonJohn Robertson, vice president and senior economist in the Atlanta Fed's research department

June 7, 2012 in Employment, Labor Markets | Permalink

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You need to spend more time in corporate America. Having been on both sides of the process recently, i can tell you, he is 100% correct. It would be deeply eye opening for you. HR policies are very rigid and in some cases i know the hiring manager only gets "pre-screened" applicants and is not allowed to review resumes. pick a name from a hat! And these are deeply skilled people with masters and doctoral degrees in economics, finance...

Second, we actually have somewhat of a time series for the manpower talent survey.

http://files.shareholder.com/downloads/MAN/1900597523x0x571882/ac2b52c1-55d8-4aaa-b99e-583bd8a82d0c/2012%20Talent%20Shortage%20Survey%20Res_US_FINAL%20%282%29.pdf


How does difficulty filling positions track through time based on the manpower talent survey?
2006 44%
2007 41%
2008 22%
2009 19%
2010 14%
2011 52%
2012 49%


In other words, the data is cyclical: when the economy is growing and employers actually have positions, employers report some difficulty filling them.

You can also see which are the top ten jobs. The 2006 talent survey said the top ten were: Sales Representatives, Engineers, Nurses, Technicians, Accountants, Administrative Assistants, Drivers, Call Center Operators, Machinists, Management/Executives.

There is significant overlap in the 2012 survey (what skills does "driver" need? just a commercial drivers license).

Finally, the point you need to recognize is that most training in the US is given on the job (OJT). People with masters, PhDs, MBAs, sorry, even for them its old fashioned OJT. Companies are more willing to train and less willing to be "picky" when they are not getting 6 applicants for every position. 10 applicants, 3 make it to interviews, 1 job.

The purest measure of cyclical unemployment is for young, with a college degree or above - these are the highly mobile highest skilled workers. And unemployment among this segment is still atrocious.

Posted by: dwb | June 07, 2012 at 05:03 PM

I would like to see a survey of the recent wage history of these so-called "skilled workers", as defined by employers. If these workers are in such short supply, shouldn't their wages be rising rapidly?

Posted by: rab | June 09, 2012 at 11:12 AM

Outsourcing!! Look at H1-B salaries and everything will be clear.

Posted by: vv | June 11, 2012 at 02:12 AM

"On the other hand, our poll found scant support for Capelli's claim that businesses are 'unwilling to pay the going price.' Only 9 percent of respondents reported that too few applicants would accept the offered compensation package."

Applicants that don't accept the compensation package, after applying and interviewing, aren't really the problem. While some employers don't advertise wages in a posting - others do. Those offering sub market wages are going to attract the least qualified, most desperate applicants.

Further, our experience working with the unemployed and employers suggests that a significant percentage screen out the long-term unemployed and/or anyone unemployed at all. Screening out the unemployed will bias the sample. Given the number of mass layoffs since 2008, affecting "good" and "bad" workers alike, many highly skilled employees will be automatically screened out.

Some firms use computer programs to pre-screen applications meaning no human ever sees the application before it's "accepted" by the firm. These programs will screen out those with salary expectations higher than that which the firm is willing to offer (as well as the unemployed).

Posted by: Bob | June 11, 2012 at 06:40 AM

I sincerely hope that the researchers have a good idea of how outsourcing works. It is NOT JUST the employees who work in the US at all!


Let us take one of the good job categories which support around 4 to 5 other jobs in the economy (Computer Engineering) as an example and it is the best way to describe this phenomenon. The way the firms reduce costs is by employing a TOKEN H1-B visa candidate in the US (from one of the outsourcing firms) and make this person manage a pool of 30 offshore workers (paid around $20/hour offshore wage as opposed to $50/hour in the US). The outsourcing firms also train all their employees unlike the US where the employers need to train them. So For every H1-B visa issued, there are over 30 high paying jobs lost in the US (which results in over 150 other jobs lost indirectly) and the work is done at a one-third of the cost. So basically employers are stunned when US citizens ask for more than $20/hour wages for any job (or say they haven't worked in that field) which can be offshored and don't want to pay and say it is a skills mismatch. Of course, lawyers, doctors and dentists have got it made
since there is no technology to pull the teeth thru offshore labor so far.

On a side note, I suspect the productivity figures in the US are also showing large surges because of this (a large pool of employees in offshore locations NOT included in the productivity calculations). Profit margins are also skyrocketing because the pool of employees in offshore locations are paid a pittance in weaker currencies. So as long as the offshore labor pool is available at low wages, companies here can have skyrocketing productivity and have high margins until the whole system collapses due to lack of purchasing power.

Posted by: vv | June 11, 2012 at 09:31 AM

If the lack of proper skills is what is holding back hiring, then the most sought-after people in the labor market would be recent college graduates. Sadly, as many graduates, college placement officers, and parents of graduates can tell you, this is not at all the case.

This suggests, then that skill mismatch is not the problem and the refrain of "If we only had employees who were ready for the new economy . . ." is a smokescreen. Instead of looking on the labor side of the hiring equation, perhaps giving attention to the management side of the equation might help.

Managers with whom I speak tell me of memos and conversations with executives that present two very powerful forces at work:

(1) "You have to squeeze more productivity out of existing workers, to keep the bottom line looking good."

(2) "Don't add head count until you are absolutely certain that our sales are on the rise. It's better to lag behind in hiring than to get out in front of the recovery."

Fear of being wrong about the need for new employees is a huge motivator not to hire.

Posted by: Peterr | June 11, 2012 at 11:09 AM

Seconding rab - structural problems should lead to significant pockets of rapidly increasing wages.

Posted by: Barry | June 12, 2012 at 04:16 PM

Employers are cost cutting to the bone when it comes to employees. It started with wage stagnation, increasing workloads while minimizing hiring, elimination or reduction of benefits, and minimizing training costs. There appears to be a number of influential employers that do not want to incur any costs (i.e. unemployment, social security, medicare, or workers compensation) in acquiring an employee other than paying enough to meet their reservation wage which has probably been reduced due limited opportunities to negotiate or change positions. It almost makes you wonder whether the preponderance of scientific management and propensity to go public encourages these practices.

Posted by: LB | June 20, 2012 at 11:12 AM

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June 01, 2012


Will labor force participation continue to rise?

The labor force participation rate ticked up in May, as did the rate of unemployment. As we have noted in the past, the near-term trajectory of the unemployment rate depends critically on what happens to the participation rate. So the question is, can we expect further upward changes in the participation rate? The answer depends a lot on the labor market attachment of those that are currently out of the labor force.

A few weeks ago, my frequent coauthor, Julie Hotchkiss, wrote about what we can gain from detailed labor market data about the activities of people who have exited the labor force. In her posting, she discussed the overall increase in exits from the labor force, with a focus on 25–54 year olds. Her work concluded that while people identified "Household Care" as the dominant activity for those not in the labor force, there has been a significant upward shift since the recession in those indicating "School" or "Other" as their primary reason for not being in the labor force. A supposition is that at least those that indicated they were in school would reenter the labor force at some point, doing so with a higher level of skills or, at least, with skills that are better aligned with labor demand. However, because we know little about those in the Other category, the future labor market attachment for them is less clear.

This post explores data on transitions into the labor force, primarily for those in the Other category. As in the earlier blog, the focus is on individuals aged 25–54, as retirement dominates the activity of older individuals not in the labor force and schooling dominates the activity of younger individuals not in the labor force.

One indicator of whether those in the Other group are planning to reenter the labor force is whether the individuals in this group are classified as marginally attached to the labor force. A nonparticipant who is marginally attached indicates they want employment or are available for employment. Also, they indicate having looked for a job in the previous year but not actively looking for a job at present. Using monthly data from the Current Population Survey (CPS) that are matched year over year, we see that the marginally attached workers do transition back into the labor force at twice the rate of all individuals who are not in the labor force, as chart 1 illustrates. These rates are relatively stable over time.

As chart 2 shows, a much higher proportion of individuals in the Other category are marginally attached to the labor force, compared to other types of nonparticipants. Moreover, the percentage of these marginally attached nonparticipants has increased from around 20 percent to 30 percent over the last three years.

This higher probability of marginally attached workers returning to the labor force combined with the significantly increased share of marginally attached workers in the Other category suggests that we should expect to find a higher share of those in the Other group returning to the labor force than we've seen in the past. But it turns out that this expected development is not what has happened. The Other group also includes individuals who are not marginally attached to the labor market, and their transition rates into the labor market have declined. On net, while the transition rate to employment is highest for the Other category (reflecting the large of share of marginally attached), the transition rate into the labor force does not fully reflect the increased level of marginal attachment to the labor force.

The group with the next highest transition rate to employment is in the School category, which reflects the inherent transitory nature of that activity. However, it is noteworthy that the school transition rate is lower than it was before the recession. This development reflects an increase in the share of individuals continuing to indicate that school is their primary reason for not participating in the labor force from one year to the next. And it suggests that the lower opportunity cost of attending school is influencing the decision to remain in school longer.

While these trends suggest that we could expect to see higher rates of return to the labor force going forward, this potential development will likely require a much better showing of jobs numbers than were seen today before kicking in.

Photo of Melinda PittsBy Melinda Pitts, research economist and associate policy adviser

June 1, 2012 in Data Releases, Employment, Labor Markets | Permalink

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How much does end of government unemployment benefits enter into the equation?

Posted by: Jeff Carter | June 06, 2012 at 10:26 PM

A very good sign isn't it ? I think it is a sign of better economy on track and everyone will take full breath now.

Posted by: Robinsh | June 08, 2012 at 09:17 PM

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