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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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June 29, 2015


New Atlanta Fed Series Shows Wage Growth Held Steady in May

According to the Atlanta Fed's Wage Growth Tracker, a new series constructed using data from the Current Population Survey, the median increase in wages for individuals working in May 2014 and May 2015 was 3.3 percent (reported as a three-month average).

Wage growth by this measure was essentially unchanged from April and 1 percentage point higher than the year-ago reading. The current pace of nominal hourly wage growth is similar to that seen during the labor market recovery of 2003–04 and about a percentage point below the pace experienced during 2006–07, which was the peak of the last business cycle. You can download the data going back to March 1997 from our website by clicking "export," shown in the upper right of the chart below.

Wage growth differs by job and worker characteristics. For prime-age individuals and full-time employees, for example, the Wage Growth Tracker recorded slightly higher readings than the group overall. The median wage growth of these individuals was 3.5 percent compared to 3.3 percent for all individuals. To see more cuts of the data, check out our website.


June 29, 2015 in Economic conditions, Wage Growth | Permalink

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Dear John and Ellyn, I have the following question:

How do you reconcile the drop in the ECI last week with the firmness of Atlanta Wage Growth indicator? Which should be a better indicator of the wage pressures in the US economy? Thanks !

Rezart, USD Portfolio Manager, in Bank of Albania

Posted by: Rezart Molla | August 06, 2015 at 05:35 AM

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June 23, 2015


Approaching the Promised Land? Yes and No

Last Friday, we released our June installment of the Business Inflation Expectations (BIE) survey. Among the questions we put to our panel of businesses was a quarterly question on slack, asking firms to consider how their current sales levels compare to what they would consider normal.

The good news is, on average, the gap between firms' current unit sales levels and what they would consider normal sales levels continues to close (see the chart).

150623-chart

By our measure, firm sales, in the aggregate, are 1.9 percentage points below normal, a bit better than when we polled them in March (when they were 2.1 percent below normal) and much improved from this time last year (3.7 percent below normal). For comparison, the Congressional Budget Office's (CBO) estimate of slack on a real gross domestic product (GDP) basis was 2.6 percent in the first quarter (though this estimate will almost certainly be revised to something closer to 2.4 percent when the revised GDP estimates are reported later today). And if GDP growth this quarter comes in around 2.5 percent as economists generally expect, the CBO's GDP-based slack estimate will be 2.2 percent this quarter, just a shade larger than what our June survey data are saying.

Now, as we have emphasized frequently (for example, in macroblog posts in May 2015, February 2015, and June 2013), performance in the aggregate and performance within select firm groups can differ widely. For example, while small firms continue to have greater slack than larger firms, their pace of improvement has been much more rapid (see the table).

150623-table1

Likewise, some industries (such as transportation and finance) see current sales as better than normal. But others, like manufacturers, are currently reporting considerable slack—and findings from this group appear to show a marginal worsening in sales levels over the past 12 months.

Another item that caught our attention this month was the differing pace of narrowing in the sales gap among those firms with significant export exposure (greater than 20 percent of sales) relative to those with no direct export exposure. We connected these dots using responses to this month's special question, in which responding firms specified their share of customers by geographic area: local, regional (the Southeast, in our case), national, and international (see the table).

150623-table2

So things are still getting better for the economy overall, and the small firms in our panel have displayed particularly rapid improvement during the last year. But if you've got exposure to the "soft" export markets, as mentioned in the June 17 FOMC statement, you've likely experienced a slower pace of improvement.

Photo of Mike Bryan
By Mike Bryan, vice president and senior economist,
Photo of Brent Meyer
Brent Meyer, economist, and
Photo of Nicholas Parker
Nicholas Parker, economic policy specialist, all in the Atlanta Fed's research department

June 23, 2015 in Business Cycles, Business Inflation Expectations, Economic conditions | Permalink

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June 19, 2015


Will the Elevated Share of Part-Time Workers Last?

There seems to be mounting evidence that at least part of the elevated share of part-time employment in the economy is here to stay. We have some insights to offer based on a recent survey of our business contacts.

Why are we interested? A higher part-time share of employment isn't necessarily a bad thing, if people are doing so voluntarily. Unfortunately, the elevated share is concentrated among people who would prefer to be working full-time. Using the average rate of decline over the past five years, the part-time for economic reasons (PTER) share of employment is projected to reach its prerecession average in about 10 years.

This is significantly slower than the decline in the unemployment rate, whose trajectory suggests a much sooner arrival—in around a year. The deviation raises an important policy question for measuring the amount of slack there is beyond what the unemployment rate suggests, and ultimately the extent to which policy can effectively reduce it.

What are the drivers? Data versus anecdotes
Researchers (here, here, and here) have pointed to factors such as industry shifts in the economy, changing workforce demographics, rising health care costs, and the Affordable Care Act as potentially important drivers of this shift. But we can glean only so much information from data. When a gap develops, we generally turn to our business contacts who are participating members in our Regional Economic Information Network (REIN) to fill in the missing information.

According to our contacts, the relative cost of full-time employees remains the most important reason for having a higher share of part-time employees than before the recession, which is the same response we received in last summer's survey on the same topic. Lack of strong enough sales growth to justify conversion of part-time to full-time workers came in as a close second.

The importance rating for each of the factors was notably similar to last year's survey, with one exception. Technology was rated as somewhat important, reflecting an uptick from the average response we received last year. We've certainly heard anecdotally that scheduling software has enabled firms to better manage their part-time staff, and it seems that this factor has gained in importance over the past year.

The chart below summarizes the reasons our business contacts gave in the July 2014 and the May 2015 surveys. The question was asked only of those who currently have a higher share of part-time workers than they did before the recession. The chart shows the results for all respondents, whether they responded to one or both surveys. When we limited our analysis to only those who responded to both surveys, the results were the same.

Will the elevated share persist?
The results suggest that a return to prerecession levels is unlikely to occur in the near term.

The chart below shows employers' predictions for part-time employment at their firms, relative to before the recession. About 27 percent of respondents believe that in two years, their firms will be more reliant on part-time work compared to before the recession. About 7 percent do not currently have an elevated share of part-time employees but believe they will in two years. About two-thirds believe their share of part-time will be roughly the same as before, while only 8 percent believe they will have less reliance on part-time workers compared to before the recession.

The majority of our contacts believe their share of part-time employment will normalize over the next two years, but some believe it will stay elevated. Still, 2017 does not mean the shift will be permanent. In fact, firms cited a balance of cyclical and structural factors for the higher reliance on part-time. Low sales growth and an ample supply of workers willing to take part-time jobs could both be viewed as cyclical factors that will dissipate as the economy further improves.

Meanwhile, higher compensation costs of full-time relative to part-time employees and the role of technology that enables companies to more easily manage their workforce can be considered structural factors influencing the behavior of firms. Firms that currently have a higher share of part-time employees gave about equal weight to these forces, suggesting that, as other research has found, both cyclical and structural factors are important explanations for the slow decline in the part-time share of employment.


June 19, 2015 in Business Cycles, Employment, Labor Markets, Unemployment | Permalink

Comments

Current technologies are a great enabler, this may not have been the case in the past. But one of the reasons, which needs further study is the fall out of M&A and the impact on payrolls, which makes very little allowance for full-time additions thereafter. The full time additions have been more in the retail space or service area, followed by technology, while we have seen dwindling fortunes in the Oil & Natural Gas sector, the last one has seen a switch to part-time.

Posted by: Procyon Mukherjee | June 21, 2015 at 11:26 PM

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June 08, 2015


Falling Job Tenure: It's Not Just about Millennials

The image of a worker in the 1950s is one of a man (for the most part) who plans on spending his entire career with one employer. We hear today, however, that "...long gone is the lifelong loyalty to a corporation with steadfast servitude for years on end." One report tells us that "people entering the workforce within the past few years may have more than 10 different jobs before they retire." The reason? "Millennials don't like commitments." Well, the explanation is probably not that simple, but even simply measuring trends in job tenure is also not all that straightforward.

Despite a strong impression that entire careers spent with one employer are a thing of the past, some have declared the image of job-hopping millennials a myth. (You can read some discussions at About.com, CNBC, and Marketwatch, for example.) These reports are all based on a September 2014 news release from the U.S. Bureau of Labor Statistics (BLS) stating that among every employee age group (even the youngest), median job tenure has not declined from when it was reported 10 years earlier. (Median job tenure is basically the "middle" amount of job tenure. If all workers are lined up from lowest tenure to highest tenure, the median tenure would be the amount of time the person in the middle of that line has been with his/her employer.)

Chart 1 illustrates the biennial data on job tenure reported by the BLS and interpreted by the reports mentioned above as indication that job tenure is not falling. Each line represents an age range, from 20- to 30-year-olds at the bottom (the lowest median tenure among all age groups) to 61- to 70-year-olds on the top (the age group with the highest median tenure). It sure doesn't look as though workers at each age group are staying with their jobs for shorter periods.


However, the problem with simply comparing median tenure across time by age group is that different ages at different time periods face different labor market institutions, incentives, and expectations. There are generational, or cohort, differences in what the labor market looks like and has to offer a 25-year-old born in 1923 and a 25-year-old born in 1993. In other words, each generation is represented across the age groups at different points in time.

The different colored points across age groups in chart 1 indicate the range of years the people in that particular year, in that age group, were born (and to what named generation they belong). The labor market facing a 31-to 40-year-old baby boomer in 1996 looks quite different from the labor market facing a 31-to-40-year-old Gen Xer in 2012, and the social, economic, and behavioral differences are even more dramatic the farther apart the generations become.

For example, one of the most dramatic changes facing workers has been the transformation from defined-benefit to defined-contribution retirement plans. The number of years a worker spends with an employer is no longer an investment in the employee's retirement. (William Even and David Macpherson (1996) illustrated the important link between the presence of an employer-sponsored retirement plan and worker tenure in their paper "Employer Size and Labor Turnover: The Role of Pensions.")

Additionally, the share of those 25 and over with a college degree in the United States has increased from 5 percent in 1950 to 32 percent in 2014, according to data from the U.S. Census Bureau. A more educated workforce is one with more general, or transferable, human capital, reducing the need to stay with just one employer to reap a return on one's investment in human capital. The transition of the U.S. economy from a basis in manufacturing to one based in services, supported by technology, also means employers require more general, rather than specific, human capital.

Firms have also changed the way they invest in workers, offering less on-the-job training than they used to, weakening their ties to the worker. And on top of all of this, because of near-instantaneous access to information, movies, and music brought by the digital age, younger cohorts are purported to have shorter attention spans than older cohorts (as reported here). All these factors shape the environment in which workers and employers view the value of longevity in their relationship.

To get a more accurate picture of the lifetime pattern of median job tenure and how it has changed across generations, we use the same BLS data used to produce the chart above to group workers into cohorts, or people who have similar experiences by virtue of when they were born. In other words, we rearrange the data used in chart 1 to line people up by birth year rather than by calendar year in order to illustrate (in chart 2) that median job tenure is indeed declining through the generations.


What we see in this chart—using the 20- to 30-year-olds, for example—is that the median job tenure was four years among those born in 1953 (baby boomers) when they were between 20 and 30 years old. For 20- to 30-year-olds born in 1993 (millennials), however, median job tenure is only one year. Similar—and some even more dramatic—declines occur across cohorts within each age group.

Declining job tenure is not just all about millennials having short attention spans. In fact, there is a greater (five-year) decline in median job tenure between 41- and 50-year-old "Depression babies" (born in 1933) and 41- to 50-year-old Gen Xers (born in 1973). So, just as our colleagues here at the Atlanta Fed discovered with regard to declines in first-time home mortgages, millennials aren't to blame for everything!

So what does declining job tenure mean for the U.S. labor market? From the perspective of the worker, portable retirement savings and, now, portable health insurance mean that workers confront a world of possibilities that our parents and grandparents never dreamt of. Yes, perhaps the days of predictability in one's career is a thing of the past. But so is the "eggs-in-one-basket" loss of retirement savings when your employer goes out of business as well as potentially slower career progression within a single firm.

From the economy's perspective, the flexibility of workers seeking their highest rents and the flexibility of firms to seek better matches for their needed skills mean greater productivity—not to mention growth—all around.

Photo of Julie Hotchkiss
By Julie L. Hotchkiss, research economist and senior policy adviser, and
Photo of Christopher MacPherson
Christopher J. Macpherson, an intern, both in the Atlanta Fed's research department

June 8, 2015 in Employment | Permalink

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"From the economy's perspective, the flexibility of workers seeking their highest rents and the flexibility of firms to seek better matches for their needed skills mean greater productivity—not to mention growth—all around."

Who is this "economy" and why should we care about its perspective?

Oh, you mean creditors, right? Ah now it's clear. "Labor as a commodity" is NOT a bonanza for workers.

Posted by: Sandwichman | June 08, 2015 at 05:58 PM

Labor is (not) a Commodity

http://ecologicalheadstand.blogspot.ca/2013/02/labor-is-not-commodity_18.html

"Labour is a commodity like every other, and rises or falls according to the demand." – Edmund Burke

"Labour is not a commodity." – International Labour Organization, Declaration of Philadelphia

"We must now examine more closely this peculiar commodity, labour-power." – Karl Marx

Organized labor’s millennium lasted exactly six years, two months, two weeks and five days. On October 15, 1914, U.S. President Woodrow Wilson signed the Clayton Antitrust Act. Samuel Gompers, founding president of the American Federation of Labor, hailed the labor provisions of that law as "the most comprehensive and most fundamental legislation in behalf of human liberty that has been enacted anywhere in the world", "the foundation upon which the workers can establish greater liberty and greater opportunity for all those who do the beneficent work of the world" and the "industrial Magna Carta upon which the working people will rear their structure of industrial freedom." Gompers gushed that the words contained in Section 6 of the Act, "That the labor of a human being is not a commodity or article of commerce," were "sledge-hammer blows to the wrongs and injustices so long inflicted on the workers."

On January 3, 1921, in the case of Duplex Printing Press Co. v. Deering, the U.S. Supreme Court ruled that "there is nothing in the section to exempt such an organization [i.e., union] or its members from accountability where it or they depart from its normal and legitimate objects and engage in an actual combination or conspiracy in restraint of trade," thereby confirming an opinion long held by objective observers that the labor provisions of the Clayton Act didn't actually exempt unions from court injunctions. In the meanwhile, Gompers journeyed to Paris to lobby for virtually identical language in the Treaty of Versailles, affirming the official non-commodity status of workers everywhere: "Labour should not be regarded merely as a commodity or article of commerce." In 1944, the International Labour Organization reiterated as the first principle of its Declaration of Philadelphia that "Labor is not a commodity."

The everyday experience of working people, economic policies of governments, bargaining priorities of trade unions and theoretical models of economists refute the idealistic maxim that labor is not a commodity. An early rationale for the proposition was given in 1834 by William Longson of Stockport in his evidence to the House of Commons Select Committee on Hand-Loom Weavers:

"…every other commodity when brought to market, if you cannot get the price intended, it may be taken out of the market, and taken home, and brought and sold another day; but if a day's labour is offered on any day, and is not sold on that day, that day's labour is lost to the labourer and to the whole community…"

Longson concluded from these observations of labor's peculiarities that, "I can only say I should be as ready to call a verb a substantive as any longer to call labour a commodity."

Karl Marx was emphatic about the peculiar historical nature of labor – or, more precisely, labor-power – as a commodity. Rather than reject the label outright, though, he chose to examine it more closely. Marx observed that for labor-power to appear on the market as a commodity, the sellers must first be free to dispose of it (but only for a definite period) and also must be obliged to offer labor-power for sale because they are not in a position to sell commodities in which their labor is embodied.

Connecting Longson's observation to Marx's, it would seem as though, aside from moral strictures, one of the qualities that most distinguishes labor-power from other commodities – its absolute and immediate perishability – is what compels its seller to submit unconditionally to the vagaries of demand. To paraphrase Joan Robinson, the misery of being regarded as a commodity is nothing compared to the misery of not being regarded at all.

So if labor-power is not a commodity, or is only one due to peculiar and rather disagreeable circumstances, what is it, then? Consider the idea of labor-power as a common-pool resource. Labor-power can be distinguished from labor as the mental and physical capacity to work and produce use-values, notwithstanding whether that labor-power is employed. Labor, then, is what is actually performed as a consequence of the employment of a quantity of labor-power.

Human mental and physical capacities to work have elastic but definite natural limits. Those capacities must be continuously restored and enhanced through nourishment, rest and social interaction. "When we speak of capacity for labour," as Marx put it, "we do not abstract from the necessary means of subsistence." It is the combination of definite limits and of the need for continuous recuperation and replacement that gives labor-power the characteristics of a common-pool resource. As Paul Burkett explains, Marx regarded labor power not merely as a marketable asset of private individuals but as the "reserve fund for the regeneration of the vital force of nations". "From the standpoint of the reproduction and development of society," Burkett elaborates, "labor power is a common pool resource – one with definite (albeit elastic) natural limits."

"Common pool resource" is not the terminology Marx used; Burkett has adopted it from Elinor Ostrom's research. For Ostrom, common pool resources are goods that don't fit tidily into the categories of either private or public property. Some obvious examples are forests, fisheries, aquifers and the atmosphere. Relating the concept to labor is especially apt in that it illuminates, as Burkett points out, "the parallel between capital's extension of work time beyond the limits of human recuperative abilities [including social vitality], and capital's overstretching of the regenerative powers of the land." That parallel debunks the hoary jobs vs. the environment myth.

The basic idea behind common-pool resources has a venerable place in the history of neoclassical economic thought. It can't be dismissed as some socialistic or radical environmentalist heresy. In the second edition of his Principles of Political Economy, Henry Sidgwick observed that "private enterprise may sometimes be socially uneconomical because the undertaker is able to appropriate not less but more than the whole net gain of his enterprise to the community." In fact, from the perspective of the profit-seeking firm, there is no difference between introducing a new, more efficient production process and simply shifting a portion of their costs or risks onto someone else, society or the environment. The opportunities for the latter may be more readily available.

One example Sidgwick used to illustrate this was "the case of certain fisheries, where it is clearly for the general interest that the fish should not be caught at certain times, or in certain places, or with certain instruments; because the increase of actual supply obtained by such captures is much overbalanced by the detriment it causes to prospective supply." Sidgwick admitted that many fishermen may voluntarily agree to limit their catch but even in this circumstance, "the larger the number that thus voluntarily abstain, the stronger inducement is offered to the remaining few to pursue their fishing in the objectionable times, places, and ways, so long as they are under no legal coercion to abstain."

In the case of labor-power, "fishing in the objectionable times, places and ways" manifests itself in the standard practice of employers considering labor as a "variable cost." From the perspective of society as a whole, maintaining labor-power in good stead is an overhead cost. The point is not to preach that firms ought to treat the subsistence of their workforce as an overhead cost. That would no doubt be as effectual as proclaiming that labor is not a commodity. As with Sidgwick's fishery, a greater advantage would accrue to firms that didn't conform to the socially-responsible policy.

Ostrom explained the differences between various kinds of goods by calling attention to two features: whether enjoyment of the good subtracts from the total supply still available for consumption and the difficulty of restricting access to the good. Private goods are typically easy to restrict access to and their use subtracts from total available supply. Public goods are more difficult to restrict access to and their use doesn't subtract from what is available for others. Common-pool goods are similar to private goods in that there use subtracts from the total supply but they are like public goods in that it is more difficult to restrict access to them.

If it were merely a matter of selling to employers, then labor-power would have the uncomplicated characteristics of a private good. Working for one employer at a given time precludes working for another. Hypothetically, the worker can refuse to work for any particular employer thereby restricting access. But here we need also to contend with that peculiarity of labor-power noted by the silk weaver, William Longson that a day's labor not sold on the day it is offered is "lost to the labourer and to the whole community."

"If his capacity for labour remains unsold," Marx concurred, "the labourer derives no benefit from it, but rather he will feel it to be a cruel nature-imposed necessity that this capacity has cost for its production a definite amount of the means of subsistence and that it will continue to do so for its reproduction." This contingency and urgency of employment effectively undermines the worker's option of refusing work, so that in practice labor-power has the features of a common-pool good rather than of a private one. Collectively, the choice of refusing work is further weakened by competition from incrementally more desperate job seekers – a population Marx called "the industrial reserve army."

So is labor a commodity or is it not? The arch, paradoxical answer would be "both." Examined more closely, the capacity for labor – labor-power – reveals itself as a peculiar commodity that exhibits the characteristics of a common-pool resource rather than a private good. An actual Charter of Industrial Freedom must address these peculiar characteristics rather than bask contentedly in the utopian platitude that labor is not a commodity.

Posted by: Sandwichman | June 08, 2015 at 05:59 PM

I applaud your insight into this important area, but you may want to rethink your second to last paragraph. You say "Yes, perhaps the days of predictability in one's career is a thing of the past", as if it is a minor wrinkle in ones life. In the past, loss of pension was a problem. Now loss of employability earlier in life is the problem. Which is worse?

Furthermore, you touch on the subject of vanishing on-the-job training. Couple that with ever increasing education expense and the vast majority of workers find themselves having to spend huge amounts of money just to stay employed. That unpredictability you cite translates into higher expense and/or lower standard of living. All of the employment risk (and cost) is being dumped onto the worker.

Finally, what is the economy's perspective? Specifically? Isn't the economy about people? And isn't one of the most important things in our lives some degree predictability and stability? Shouldn't that be part of the economy's perspective? Clearly from the capital side of the equation things are getting better, but from the labor side as well?

Anyway, thank you for this blog post. I hope it will stimulate more discussion.

Posted by: wayne mueller | June 08, 2015 at 10:02 PM

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June 05, 2015


Atlanta Fed's Wage Growth Measure Increased Again in April

A measure of 12-month wage growth constructed here at the Atlanta Fed increased by 3.3 percent in April. This rate is up from 3.1 percent in March and at its highest level since March 2009 (see the chart).

 

As mentioned in an earlier macroblog post, this measure behaves broadly like the wage and salary component of the Employment Cost index (ECI). The ECI data pertain to the last month in the quarter and are published with about a four-week lag. In contrast, the Atlanta Fed measure uses individuals' hourly wage data, 12 months apart, from the Current Population Survey (CPS). The data come from publicly available CPS microdata produced by the U.S. Bureau of Labor Statistics (BLS) and are typically released two or three weeks after the monthly BLS labor report.

Timeliness is one thing, but is it useful? It turns out there is a relatively strong correlation between this wage growth measure and the employment rate (100 minus the unemployment rate) lagged by 12 months (see the chart).

 

At least in terms of this measure of wage growth, it seems that improvement in labor utilization is translating into rising wage growth. This development is something our boss, Atlanta Fed President Dennis Lockhart, has been looking for. We expect to be able to update this wage growth measure with the May CPS data in a few weeks.

Photo of John Robertson
By John Robertson, a senior policy adviser in the Atlanta Fed’s research department

June 5, 2015 in Employment, Labor Markets, Wage Growth | Permalink

Comments

"It turns out there is a relatively strong correlation between this wage growth measure and the employment rate."

Didn't Keynes say this nearly 80 years ago? Of course Keynes is "old school" so his observations are necessarily outdated.

Posted by: Paul Mathis | June 05, 2015 at 05:49 PM

It seems that the improvement in the labor market appears to lag the improvement in wages. You would think that it should be reversed, an increase in employment leads to improved wages

Posted by: Ayelet | June 07, 2015 at 10:18 AM

@Ayelet - I think it shows the increase in wages lags the improvement in the employment rate which is what is expected by theory and gives confidence that the continuing improvement in employment should lead to more increases in wages. Given this data would be interesting to see include labor productivity in the analysis as a perceived problem in both the US and UK recovery has been the lack of productivity gains leading to concerns that the long-term potential growth rate has been reduced

Posted by: Oliver Bunnin | June 09, 2015 at 03:47 AM

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