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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March 30, 2012

Are unemployed construction workers really doing better?

Two New York Fed economists, Richard Crump and Ayşegül Şahin, writing in Liberty Street Economics, have shared some interesting findings regarding developments in the labor market during the ongoing recovery. Their conclusion is that unemployed construction workers, according to several indicators, seem to be doing better than workers who lost jobs in other sectors.

Based on their research, job-finding rates for unemployed construction workers have increased more rapidly than for the overall pool of unemployed. While flows out of the labor force for unemployed construction workers have remained flat, they have increased for those who lost jobs in other sectors. Also, using the Displaced Workers Survey (DWS) conducted by the U.S. Bureau of Labor Statistics, they show that construction workers who find jobs have the same distribution of earnings as other displaced workers who find a job.

These facts, according to the authors, provide support to the hypothesis that problems in the labor market cannot be blamed on the degree of mismatch between displaced construction workers and job vacancies in other sectors.

In this post, we present an alternative view of the fate of unemployed construction workers by looking specifically at unemployed construction workers who find jobs in other industries. Our conclusion is that unemployed construction workers are generally experiencing relatively large wage declines (relative to what they earned before becoming unemployed). Except for the lowest-skilled workers, losing a job and having to take a new job in a new industry generally involves a wage decline. That effect is especially pronounced for construction workers who become unemployed.

The U.S. Census Bureau's Survey of Income and Program Participation (SIPP) followed a panel of workers from 2008 through March 2011. The SIPP asked each worker questions about his or her individual characteristics as well as that worker's labor market experiences. Using the SIPP, we investigated the wage changes workers experience before and after an unemployment spell when their new job is in a different industry. Is the wage effect of switching sectors larger for unemployed construction workers relative to those workers in other sectors? The table displays the results from this exercise looking at the last three recessions.

Effects of Post-Unemployment Job Changes on Wages

We divided the sample of unemployed workers according to the broad industry grouping in which they lost their job. However, given the different pool of workers in each sector, we controlled for individual characteristics to isolate the specific effect on wages earned from switching sectors. These characteristics include the level of education, gender, age, whether the worker lives in a metro or rural area, the length of the unemployment spell, and whether the worker is married.

Each cell in the table represents the relative effect of switching industries on the post-unemployment wages of workers in a given industry, having taking into account the heterogeneity in the pool of workers across sectors. For example, of those workers who lost jobs in manufacturing in the 2008 SIPP, those who became reemployed in any of the other four sectors earned 9.9 percent less than those unemployed manufacturing workers who found jobs in the manufacturing sector. For construction workers, the effect of switching sectors reduced wages by 18.8 percent. In our sample, about 50 percent of workers who lost jobs in construction found jobs elsewhere but mostly in the high- and low-skilled service industries. For comparison, we repeated the calculations for other panels in SIPP that include recessions, and the results are displayed in the columns under the 2001 and 1991 headings. It is true that industry-switching unemployed construction workers also experienced large wage declines after the 2001 recession, but the decline for the 2008 panel was considerably larger.

Our conclusion is that drawing inferences about the evolution of job finding and the unemployment rates across different sectors doesn't paint a complete picture of the situation without a comparable look at wage changes for those unemployed. That comparison should also take into account the differences between the attributes of construction workers and workers in other sectors. Our results do not necessarily contradict the facts presented by Crump and Şahin. However, using the SIPP has several advantages relative to using the DWS. It allows us to compare the initial wage after an employment spell relative to the last wage earned (as opposed to average wages in the DWS) and also to control for the length of the unemployment spell that workers experience. Our more disaggregated view of the data indicates that during the 2008 recession and recovery, unemployed construction workers who took jobs in other sectors seem to have done so at a considerable loss in income. The reason may well be a mismatch between the skills they possess and those required by their new job.

Pedro Silos Pedro Silos, research economist and associate policy adviser, and

Lei Fang Lei Fang, research economist and assistant policy adviser, in the Atlanta Fed's research department

March 30, 2012 in Employment, Labor Markets | Permalink


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Construction work is seasonal, very sensitive to economic downturns, and often on limited term contrasts, so periods of unemployment are routine, a lot of construction workers already have backup skills and jobfinding networks for the bad times. And normally these are worse jobs.

Posted by: www.hrsaccount.com | March 31, 2012 at 11:03 AM

On your last statement, I am thinking how specialized are the skills of construction workers relative to other sectors-- I guess someone moving from agriculture to say services would be as green to the sector as a construction worker would be.

Another reason of the outsized decline could be the bargaining power that a construction worker is able to bring to the table when switching sectors given that both the person and the prospective employer know that the construction sector has been hit hard, making the switch rather necessary.

Posted by: Sonal | March 31, 2012 at 08:50 PM

home prices fell 35%, residential construction is deeply depressed, so why do we need to invoke "skills mismatch" when low demand will explain it well enough.

Posted by: dwb | April 02, 2012 at 09:05 PM

Regarding the statistic that less construction workers switch sectors, i have a feeling that its because many construction workers are unskilled labour, so it may be hard for them to switch sectors. Many underlying reasons as to why the difference

Posted by: Kok Leong | April 04, 2012 at 09:40 AM

The common fallacy is that construction workers are unskilled labor. This is simply not true. The building trades that it takes to build a modern building in this country (USA) are not like in the second world or the third world. We demand the best air conditioning heating and electrical systems that money can buy. It takes highly skilled and motivated workers to do that. We want building crews that don’t have language barriers. We want all of our workers to be American and speak English. It would not be easy to have the word Danger in fifteen different languages on a construction site.

I personally am an electrician that has been to four years of post secondary education to perform my profession. I am a journeyman electrician. I have been for the last forty years. I cannot change professions at this time in my career. I am almost retired, but if I were consoling a young man or woman that was thinking about going into the building trades I would tell them to forget it,

The fact that the construction sector has lost workers at he staggering rate it has, is because of the fact that the workers have families and need to feed, cloth and house them. When your pay rate is at thirty to forty dollars an hour and your unemployment has run out you have to do something different to keep up your responsibilities and pay your bills. You look for anything, anywhere that will pay something to pay your bills. So they leave construction and do what they have to.

Posted by: Blaine Baker | May 22, 2012 at 10:53 AM

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March 23, 2012

Why we debate

It's been a while since we featured one of my favorite charts—a "bubble graph" comparing average monthly job changes during this recovery with average changes during the previous recovery, sector by sector.

If you try, it isn't too hard to see in this chart a picture of a labor market that is very close to "normalized," excepting a few sectors that are experiencing longer-term structural issues. First, most sectors—that is, most of the bubbles in the chart—lie above the horizontal zero axis, meaning that they are now in positive growth territory for this recovery. Second, most sector bubbles are aligning along the 45-degree line, meaning jobs in these areas are expanding (or in the case of the information sector, contracting) at about the same pace as they were before the "Great Recession." Third, the exceptions are exactly what we would expect—employment in the construction, financial activities, and government sectors continues to fall, and the manufacturing sector (a job-shedder for quite some time) is growing slightly.

For the skeptics, I below offer a familiar chart, which traces the level of total employment pre- and post-December 2009, compared with the average path of pre- and post-recession employment for the previous five downturns:

We are now more than 16 quarters past the beginning of the recession that began in the fourth quarter of 2007, and total employment is still 4 percent lower than it was at the beginning of the downturn. In the previous five recessions by the time 16 quarters had passed, employment had increased by about 6 percent. Even in the worst case, indicated by the lower edge of the gray shaded area, employment growth was flat—and that observation is qualified by the fact that the recovery from the 1980 recession was interrupted by the 1981–82 recession.

This unhappy comparison is not driven by the construction, financial activities, and government sectors. In the area of professional and business services, which has logged the largest average monthly employment gains in the current recovery, the number of jobs still sits 2.7 percent below the level at the outset of the last recession, as the chart below shows.

Total private-sector jobs in education and health services, which never actually contracted during the recession, nonetheless remain abnormally low in historical context.

In these charts lies the crux of some very basic disagreements about the appropriate course of policy. The last three graphs draw a clear picture of labor markets that are underperforming by historical standards—a position that I take to be the conventional wisdom. An argument against following that conventional wisdom centers on the question of whether historical standards represent the appropriate yardstick today. In other words, is the correct reference point the level of employment or the pace of improvement in the labor market from a permanently lower level? For the proponents of the latter view, the bubble chart might very well look like a return to normal, despite the fact that employment has not returned to prerecession levels.

One way to adjudicate the debate, in theory, is to rely on the trajectory of inflation. If there remains a significant amount of slack in labor markets, as the conventional interpretation of things suggest, there ought to be consistent downward pressure on prices. The case for consistent downward pressure on prices is not so obvious. Measured inflation appears to moving in the direction of the Federal Open Market Committee's 2 percent long-term objective.

Also, the Atlanta Fed's own monthly survey of business inflation expectations, which surveys a panel of businesses from our Reserve Bank district, indicates that this inflation number (shown in our March release from earlier this week) is in line with what private-sector decision makers anticipate:

"Survey respondents indicated that, on average, they expect unit costs to rise 2.0 percent over the next 12 months. That number is up from 1.9 percent in February and comparable to recent year-ahead inflation forecasts of private economists. Firms also reported that their unit costs had risen 1.8 percent compared to this time last year, which is unchanged from their assessment in February. Inflation uncertainty, as measured by the average respondent's variance, declined from 2.8 percent in February to 2.4 percent in March, the lowest variance since the survey was launched in October 2011."

Does that settle it? Not quite. There may not be much evidence of building disinflationary pressure, but neither is there building evidence of an inflationary push that you would expect to see if the economy were bumping up against capacity constraints. Obviously, the story isn't over yet.

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


March 23, 2012 in Deflation, Employment, Federal Reserve and Monetary Policy, Inflation, Labor Markets, Monetary Policy | Permalink


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I like your Employment chart. The bubbles giving the labor group size is a nice addition.

On thing on inflation: I picture inflation as a tug-of-war between the money supply and economic growth. Normally, I would say both teams have 1 person on each side of the rope. However, in present times, we have had extended periods of very low interest rates pumping inflation up while a slow economy is tugging it down. The teams are much bigger in this case, 10 on each side. When one side eventually falls in the mud, the consequences will be much greater due to the higher tension.

Inflation may be moderate for now, but we are balanced on a knife edge.

Posted by: BTN | March 26, 2012 at 12:41 PM

Inflation can be a headache in these situations. Employment must be high to counter such effects.

Posted by: Dallas Real Estate | March 30, 2012 at 05:23 PM

If one assumes that there has a been a structural shift in the labor market in the past twenty five years, what do the average charts look like for the past three cycles (as opposed to five)?

Posted by: dickens | April 03, 2012 at 01:09 PM

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March 16, 2012

Unconventional policy or unconventional circumstances?

Lots of bloggers have expressed lots of different views on what they consider interesting in Roger Lowenstein's new profile of Federal Reserve Chairman Ben Bernanke in The Atlantic. Authors at The Big Picture, Free Exchange, Marginal Revolution, Modeled Behavior, and Real Time Economics, for example, all highlight distinct passages that piqued their individual interests. This is what caught my eye:

"Bernanke's unconventional programs have been implemented in two phases. During the financial crisis of 2007–09, he bailed out a handful of large banks and devised a series of innovative lending operations to disperse credit to banks, small businesses, and consumers (virtually all of these loans have been repaid at a profit to taxpayers). He also lowered short-term interest rates to nearly zero and made private banks run a gantlet of stress tests to ensure some minimal level of solvency going forward. Although fierce anger against the bailouts persists, there is little argument that this first stage was a success. However untidily the rescue was managed, the financial crisis is over.

"In the second stage, Bernanke has sought to revive a weak economy by maintaining short-term interest rates at close to zero, and by purchasing, in vast quantities, long-term Treasury bonds and mortgage-backed securities. This second phase has been, if anything, more controversial than the first. Its success is much harder to measure (we have no way of knowing whether the economy's improvement would have been less robust, and how much so, without Bernanke's efforts). And it has exposed Bernanke to charges of meddling too deeply in the private sector, of disrupting the economy's natural rhythms long past the point when such intervention is necessary. In particular, critics note that the Fed has stuffed the banking system with $1.5 trillion in excess reserves—money for which the banks have no present use, loan demand being modest, but which could one day spark an epidemic of inflation.

"Michael Bordo, a monetary historian at Rutgers, told me that in this second phase, 'Bernanke has moved into areas that were quite different from what the framers had in mind. One of the risks the Fed is facing is of overreach.' "

I want to point out up front that I respect Bordo a great deal. He is a friend and collaborator to many of us at the Atlanta Fed. In fact, he was the co-organizer of our 2010 conference that commemorated the 1910 Jekyll Island meeting that resulted in draft legislation (the Aldrich Plan) for the creation of a U.S. central bank. He is also the co-editor of the proceedings volume from that conference that will be forthcoming from the Cambridge University Press. But I may disagree with his assessment here.

First, just to dispose of the easy stuff, there probably isn't much about "normal" monetary policy that the framers of the Fed had in mind. Legislation creating the Federal Open Market Committee (FOMC) didn't arrive until 1935, and interest rate policy aimed at addressing broad macroeconomic conditions was not likely of much concern to folks preoccupied with birthing a lender of last resort.

But I don't think that is what Professor Bordo has in mind. I think the criticism is that the "purchasing, in vast quantities, long-term Treasury bonds and mortgage-backed securities" represents a discrete break from normal, well-established, plain-vanilla monetary policy as it was understood precrisis.

There are generally two aspects to this criticism, one related to the type of assets that the Fed has purchased and one related to the sheer size of those purchases. The first of these criticisms amounts to the contention that the FOMC should restrict itself to dealing in Treasury securities alone and that the foray into the mortgage-backed security market represents an unwise exercise in credit allocation. Personally, I have some sympathy with this concern ( articulated over a decade agoby former Richmond Fed president Al Broaddus and former Richmond Fed research director Marvin Goodfriend), but I have also expressed my view that such forays might be understood as substitutes for normal policy in conditions in which normal policy is constrained by circumstances.

And so it is with the scale of the Fed's asset purchases. Normal policy in normal times would drive asset purchases in the service of generating desired movements in short-term interest rates (leading, it is assumed, to effects on a broader set of asset yields). This particular routine is obviously not available when the federal funds rate is at its zero lower bound. But that does not mean the logic of this mechanism is absent in asset purchase programs implemented once that bound is hit. Specifically, one way to think about large-scale asset purchases is that those purchases can replicate the effects of federal funds rate reductions, if only those rate reductions could be implemented.

There are several ways to get at this question—one very nice summary has been provided by Sharon Kozicki, Eric Santor, and Lena Suchanek from the Bank of Canada. At the Atlanta Fed, we have our own version of gauging the effects of large-scale asset purchases. Our approach involves estimating a "virtual federal funds" based on the size of Federal Reserve asset holdings relative to total commercial bank liabilities. The details of how this virtual funds rate is constructed can be found here, but the upshot is in this chart:

The Virtual Federal Funds Rate

Two points. First, the virtual funds rate, which combines the zero actual funds rate with the estimated interest-rate equivalent from the Fed's cumulative asset purchases, is about 200 basis points to the south of zero. Second, as a reference point, the chart compares our virtual funds rate to one version of the Taylor rule that relates the federal funds rate to deviations of gross domestic product from its estimated potential and inflation from the Fed's 2 percent long-run objective. As the chart depicts, this comparison is, as of now, just about right, despite the fact the federal funds rate is constrained near zero.

I hasten to add that the Taylor rule in the chart above is, for present discussion, for reference only. There are certainly plenty of arguments as to why the rule depicted in the chart may not provide the right policy guidance. For example, there are debates over how to appropriately specify the Taylor rule, as reflected in this post by David Papell at Econbrowser. Furthermore, there are arguments as to whether policy more generally ought to be more aggressive at present than any standard Taylor rule prescription.

My intent is not to argue whether policy is, at present, appropriately calibrated. My point is that rather than thinking of large-scale asset purchases as unconventional policy, perhaps we should think of them as conventional policy in unconventional circumstances.

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

March 16, 2012 in Federal Reserve and Monetary Policy, Monetary Policy | Permalink


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"estimated interest-rate equivalent from the Fed's cumulative asset purchases"

can you specify how you estimated this? Are you using PCE for the inflation number and 50-50 weights on infl/output?

Also, sorry to quibble, but the Taylor rule really only specifies how the FOMC has acted in the past. It really is not an optimal policy prescription.

To do that you really have to evaluate what the correct weights are. If you think of the Fed as minimizing the variability of nominal income growth with a 2% inflation target then you can rationalize equal weights, i think, under certain criteria.

There is some evidence, from the transcripts and so forth, that the Fed has pursued a "soft" nominal income target growth in the past.

it would be interesting to plug in the philly fed survey of professional forecasters real gdp growth expectations and TIPS into this and see how it looked then.

Posted by: dwb | March 17, 2012 at 09:54 AM

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March 09, 2012

What if...? Looking beyond this month's jobs numbers

Today's employment numbers for February illustrate that while mathematically simple, the relationship between employment, unemployment, and the labor force participation rate is complicated.

One might expect that we would have seen a drop in the unemployment rate in February, given the addition of an estimated 227,000 payroll jobs for the month (see the U.S. Bureau of Labor Statistics' Employment Situation for February 2012). However, the share of the working-age population in the labor force (or, rather, the labor force participation rate, LFPR) is estimated to have increased from 63.7 percent in January to 63.9 percent in February. A 0.2 percentage point increase in the LFPR is not unprecedented, but after a year of flat and declining labor force participation, it's notable. There are a lot of reasons why the supply of labor, as represented by the LFPR, rises and falls over time. In the short run, a decision of someone to enter (or re-enter) the labor force could be driven by a reassessment of job prospects. This sort of situation is why the LFPR might rise as an economy improves from a very weak position.

While not its primary purpose, the Federal Reserve Bank of Atlanta's Jobs Calculator, which was introduced last week, can help figure out roughly what the unemployment rate would have been if the LFPR had remained at its January level of 63.7 percent.

From the Jobs Calculator web page, first set the number of months to one. Then set the labor force participation rate to 63.7 percent. Next, adjust the unemployment rate until the average monthly change in payroll employment gets close to 227,000. (For example, an unemployment rate of 7.9 percent results in an estimated change in employment of 250,743, using data from the U.S. Bureau of Labor Statistics's Current Employment Survey. This calculation necessarily assumes that people enter and leave the labor force from unemployment and is only approximate because it's using February data.)

So, if the LFPR had remained at the 63.7 percent it was in January, the unemployment rate would have been roughly 8 percent in February.

Look for enhancements to the Jobs Calculator in the coming months that will make this sort of calculation more straightforward.

Julie Hotchkiss By Julie Hotchkiss, a research economist and policy adviser in the Atlanta Fed's research department


March 9, 2012 in Data Releases, Employment, Labor Markets | Permalink


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March 02, 2012

How many jobs does it take? Introducing the Atlanta Fed's Jobs Calculator

When I began my career at the Atlanta Fed in 2003, the U.S. labor market had not yet started creating jobs on net again after the 2001 recession. The question being asked over and over was, "How many jobs does the U.S. economy need to create in order to lower the unemployment rate by a certain amount?" I even participated in the discussion by writing an Economic Review article on the subject.

Of course, the Federal Reserve's interest in how many jobs it takes to lower the unemployment rate comes directly from Section 2A of the Federal Reserve Act, which states:

"The Board of Governors of the Federal Reserve System and the Federal Open Market Committee shall maintain long run growth of the monetary and credit aggregates commensurate with the economy's long run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates."

This passage is often referred to as the Fed's "dual mandate" for monetary policy. Put simply, the Fed wants to achieve (1) stable prices and (2) maximum employment. Reduction in the unemployment rate is commonly used as a measure of the progress toward the goal of maximum employment.

In a technical sense, answering the question "How many additional jobs over the next Y months are needed to lower the unemployment rate by X percentage points?" does not require a difficult calculation. But it does require some knowledge about the U.S. Bureau of Labor Statistics's (BLS) Household Survey, which gives us the official measure of the U.S. unemployment rate. This survey is based on estimates of the size of the labor force and the number of people employed that are inferred from a survey of individual households. The Household Survey differs from the BLS's Payroll Survey, which provides another estimate of employment from a survey of the payroll of individual businesses. Early each month, the estimate of employment from the Payroll Survey shares the spotlight with the Household Survey's estimate of the unemployment rate when the BLS releases its monthly employment report.

To calculate the change in employment needed to achieve a particular unemployment rate requires an assumption about how much the labor force will grow or an assumption about labor force participation given a particular population growth rate. The more the labor force grows (or the participation rate increases), the more jobs the economy needs to create, on net, to absorb the larger labor force.

In recent months, economists again (here and here) are asking (or pontificating on), "How many jobs does it take...?" To help answer that question, we at the Atlanta Fed have developed a new tool that will make the calculation for you. The tool—called the Jobs Calculator—is available on the Atlanta Fed's Center for Human Capital Studies' web page. (Readers should note that the calculator currently uses data from the January employment report, the most recent one available. When the February report is released on March 9, the data the calculator uses will be updated.)

Using the tool is as simple as choosing the target unemployment rate you want to achieve and when you want to achieve it. The Jobs Calculator produces the average number of jobs that need to be created, on net, per month in order to reach the target in the specified time period. You can even make some adjustments in the assumptions about labor force participation and population growth (and hence labor force growth). Of course, the calculator doesn't answer the questions of what numbers to plug in or why. That's up to you.

Please tell us what you think.

Julie Hotchkiss By Julie Hotchkiss, a research economist and policy adviser in the Atlanta Fed's research department


March 2, 2012 in Data Releases, Employment, Labor Markets | Permalink


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I like the tool! I understand that it's still fresh out of the early birth pangs so it will need some modifications and tinkering as time goes on.

Still, I found it very pleasing that more and more Fed employees are finding their voice and going online to blog.

As a layman, I've often found it easier to enjoy economics since the examples are those I am interested in. The learning process is uneven but at times surprisingly deep.

These tools may help those like me who want to make sense of the economic environment very quickly, but in our own fashion, and that's a good thing. Of course, calculating these things aren't hard but the time effort is the one greatly saved in and that is the big factor for me.

Posted by: Layman | March 03, 2012 at 03:32 PM

"will make the calculation for you"

Pay no attention to that black box behind the curtain.

Or the Devil's Dictionary used to define such concepts as "Labor Force Participation".

Posted by: sc721 | March 04, 2012 at 11:35 AM

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