A response to Professor Wolfers

Professor Wolfers claim there is no justification behind our assertion that the quality of jobs created in the US economy is failing to keep pace with historical norms. We beg to differ and intend to show that the quality of jobs created is below par.

Before we dig into the wealth of data that the Bureau of Bull-Shit (BLS) publishes every month, we should try to define what we mean with “quality of jobs.” Too often people debate and quarrel about a subject without a proper definition of the terms used. Maybe Professor Wolfers think of something quite different than we do with regards to quality of jobs; and if so, we might bridge our differences simply by agreeing on a common definition.

A high quality job in the US should have 1) the status as a full-time position which comes with added benefits such as health- and dental care coverage and a higher degree of job security than a part time job, and 2) enjoy a decent pay. Now, other non-measurably perks such as psychic job satisfaction obviously play a role when differentiating between various jobs. While this assessment is certainly done on an individual level, neither Professor Wolfers nor we can say anything about such subjective choices. For our purpose we will stick to our narrow definition of what constitutes a high quality job and see what the BLS data tells us.

According to the household survey the highest paid jobs can be found in utilities, mining, IT, finance, wholesale trade, construction and manufacturing. On the other end of the pay scale we find jobs within leisure and hospitality, retail trade, general service providing, education, warehousing and transport.

Now, if the US economy were producing high quality jobs we would like to see a relative higher gain in the first category than the latter. Unfortunately, this is not the case. On the contrary, if we bundle them together and look at the cumulative change since the official recovery started we see that high paying jobs are still in a deficit compared to where they were in 2009, while low paying jobs are responsible for the whole labour market recovery. In our view, this fact alone tells us what we need to know about quality of jobs, but there is more.

Source: Bureau of Labor Statistics (BLS) – Household & Establishment Survey, own calculations

The first part of our definition relates to whether a job is full-time with added benefits or part time with higher job security. We will do the same exercise as for low vs. high paying job, but extend the analysis a couple of years to include the massive drop witnessed in 2007. In the midst of crumbling bubble full time employees were laid off en masse. However, during the same period people got jobs on a part time contract. In the aftermath, going into the recovery, people seem to be staying on a part time contract while the tepid recovery have not yet managed to get people back into full time positions. As a matter of fact, in the month of June, the US economy shed 240k full time jobs while adding 360k part time jobs! Exhibit 2 provides the full picture.

Source: Bureau of Labor Statistics (BLS) – Household Survey, own calculations

Another way of looking at the same situation is to compare the people with a full time position as a share of the civilian non-institutional population. This exercise reveals a rather startling chart as only 47 per cent is working full time, similar to the situation when women started to move into the labour market.

Source: Bureau of Labor Statistics (BLS) – Household Survey, own calculations

In conclusion, we find that the labour market recovery is to be found mainly in the aggregates which Keynesians tend to favour. By digging into the details the picture looks less uplifting as the quality of the jobs created comes with lower pay, lower benefits and lower security.

But there is even more. While not directly related to the quality of jobs created we also find that it is the older age cohorts that are doing best in today’s troubled labour market; another sign of a dysfunction.

Source: Bureau of Labor Statistics (BLS) – Household Survey, (Kudos to ZeroHedge), own calculations

And then there is the whole debate about the unemployment rate. When people are no longer actively looking for work, regardless of reason, they are no longer counted as part of the labour force and hence are not counted in the ranks of the unemployed, but rather in the ominous category called “not in labour force.” If we adjust for that and assume a constant participation rate we find essentially no improvement in the unemployment rate. We can also look at the relationship between total employment and the civilian non- institutional population to substantiate our view of a stagnant labour market.

Source: Bureau of Labor Statistics (BLS) – Household Survey, own calculations

Source: Bureau of Labor Statistics (BLS) – Household Survey, own calculations

And if that was not enough to convince you about the rubbish toady`s media report asthe unemployment rate we can also throw in the complete breakdown of Okun`s “Law”

Source: Bureau of Labor Statistics (BLS), Bureau of Economic Analysis (BEA), Kudos to ZeroHedge again, own calculations

We could go on and on with the Beveridge curve, the birth/death model, the duration of long term unemployment, the abysmal slow recovery compared to other economic “recoveries,” but this is enough charts for one blog post.


Professor Wolfers`s claim that there is nothing to support the notion of a low-quality labour market recovery seems to us out of place. The more interesting question to answer is of course why the recovery has been so slow and why it seems to bring low paid jobs to old people. We have an answer, but unfortunately for the Keynesian it means looking beyond the aggregates.

Update: Former head of the BLS – Keith Hall – confirms much of what we have said here. He would add approximately 3 per cent to the U-3 unemployment rate. Read more: http://www.nypost.com/p/news/business/bls_number_is_bs_jaKS2Nc8Yu2TrnETK2bXEM

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