Oct 22, 2018

Nick Bunker on the Economic Recovery, Unemployment Measurement, and the U.S. Labor Market

Having larger public databases for labor market data would be extremely beneficial for determining optimal economic policy moving forward.
David Beckworth Senior Research Fellow , Nick Bunker

Hosted by David Beckworth of the Mercatus Center, Macro Musings is a new podcast which pulls back the curtain on the important macroeconomic issues of the past, present, and future.

Nick Bunker is an economist at the Indeed Hiring Lab where he focuses on the U.S. labor market and was previously a senior policy analyst at the Washington Center for Equitable Growth, an economics think tank. Nick joins the Macro Musings podcast to discuss the U.S. labor market and how the government measures unemployment.

Read the full episode transcript:

Note: While transcripts are lightly edited, they are not rigorously proofed for accuracy. If you notice an error, please reach out to macromusings@mercatus.gmu.edu.

David Beckworth: Nick, welcome to the show.

Nick Bunker: Thanks for having me on.

Beckworth: Glad to have you on. Nick, what is your handle on Twitter for those who want to know?

Bunker: It's Nick Bunker. So it's my name with just an underscore in between the first and last names.

Beckworth: Okay. You want to follow Nick because he's a big labor market guy. As we'll talk about later, he's a big JOLTS Day promoter versus the Jobs Day numbers, but we'll come to that later. But Nick, tell us about your journey into economics and to the economic policy world. You've worked at think tanks. Tell us what got you here.

Bunker: Yeah. When I entered college, I had these grand ambitions of being a diplomat. I was majoring in international affairs and, thankfully now in hindsight, the program I was in essentially required you to take a number of economics courses just to get that background. Essentially after my end of my freshman year and beginning of my sophomore year, I actually liked economics the most. It's the thing I'm really interested in. And then I decided, you know what? I should just go with what I'm interested in and I switched my major to economics. That was in the spring of 2008.

Beckworth: Wow.

Bunker: Interesting time to develop an interest in economics. The financial crisis happened, the Great Recession. In particular, with the labor market, there was that huge spike in unemployment also around the time that I happened to be graduating college. Academic interest became very personal very quickly. I ended up working at a think tank out of college and just developed this interest in economic policies broadly, but specifically labor market and this question, I think, of the cyclical in the wake of the Great Recession, all this damage we've done to the labor market, how much can be repaired by strong macro policy, monetary policy, physical policy, and how much is just structural, these longer term issues that other policy makers are going to have to tangle with.

Bunker: That's, now that I'm in Indeed, looking at data on the labor market either in the publicly available data that you get from BLS or the internal proprietary data that we have at Indeed. So it's a job search website, so we have data on what people are searching for and also data on what employers are posting. It's this great opportunity to look at what's going on in the labor market, combining these datasets, sometimes just the proprietary, sometimes just the public, and just trying to understand what's going on in the labor market right now and what's the really important stories out there that we need to be focusing on.

Beckworth: That must be a great place to be for a data nerd like yourself.

Bunker: It is amazing. Before I had this job, people talk about big data and all that stuff and then to actually have the opportunity to work with it, it's exciting. Most of my data experience was with publicly available data, so current populations-

Beckworth: Like the rest of us.

Bunker: Yeah. That government economists and statisticians have gone through and really worked. Things are seasonally adjusted. There's all this attention paid to quirks or interesting things. Proprietary data, no one's done that. You're doing that too. So it's been really interesting in the few months I've been with the Hiring Lab so far to really dive into that. So it's not only just, "Look, this CPS micro data's been cleaned for me," in fact, you have to go in and-

Beckworth: Clean it yourself.

Bunker: ... clean it yourself and figure out the quirks, which is really interesting, and then doing like, "Okay. Well, now, what does this tell us about the labor market?"

Beckworth: Tell us more about the Hiring Lab. Describe what you do. What is the general goal and objectives of the center?

Bunker: The Hiring Lab is a team within Indeed that our goal and mission is to help lead the global labor market conversation, to help basically find the most interesting stories that are going on in the labor market, not only the US, but we have economists in the UK, France, Germany, and Australia.

Beckworth: Oh really? Okay.

Bunker: So it's truly global, trying to understand what's going on in all these different markets and then get this news out into the world as to what's going on.

Beckworth: Because I guess you have searches from all over the world and you have data from all over the world. Okay. Interesting.

Bunker: So actually the first piece I published with the Hiring Lab was looking at the Trump Administration has taken, in both rhetoric and policy, an anti-immigration stance. Because we have data on searches outside the US and we can tell if they are searching into the United States, seeing has there been any change in international interest in the US since 2016. Has that gone down?

Beckworth: And?

Bunker: In some countries, Latin American countries in particular, if you're searching outside your country, Latin American searchers are less likely to look to the US. Overall, it's fairly flat. But Latin American countries is down. Makes some sense.

Beckworth: Makes a lot of sense.

Bunker: Mexico has gone down, other countries from South America. But what's interesting is the Muslim-majority countries that we have data on, there's no clear trend. Some of them interest has gone up, some it's gone down.

Beckworth: You would think the Muslim countries you would see a downward-

Bunker: Yeah. We don't have data on any of the countries that were on the travel ban. But for example, Oman, which is next to Yemen which is on the travel ban, actually interest in the US is up a little bit.

Beckworth: I guess also maybe there's some selection effects or the people who actually search on Indeed are going to be people who are educated, likely to get a work visa.

Bunker: Yeah, yeah. I mean I think the time trend analysis, trying to figure out, okay, maybe that's been a steady cohort over time and trying to figure out-

Beckworth: Sounds very interesting though.

Bunker: Yeah. I mean it's exciting. There's no government data on what people are actually searching for in interest.

Beckworth: I've wondered and I know there are people who've talked about this. I'm sure some of our listeners will let me know about my ignorance on this topic. But it seems to me one of the things that the government should be spending more money on is realtime data collection. I know there's some efforts being made, but hedge funds do this. I have a former student who works for a hedge fund and they take realtime data from all these credit card transactions and from other sources. They have a much better sense what's happening with economic activity in realtime.

Beckworth: Satellite images, I mean there's lots of work being done on this. If there'd be some way to incorporate all this into some kind of realtime metrics that would better inform Federal Reserve policy, fiscal policy, all those things.

Bunker: Yeah. I totally agree. You think public data's a great example of a public good that the government helps not only policy makers, but businesses too just to see what's going on in the world. Actual investment in these data infrastructures has been flat to down over the last couple years. It's one of those things that you'd hope there'd be more investment in because BLS and BEA and census do great work. A good example of this is you often hear these conversations about the gig economy or new. different kinds of work arrangements.

Bunker: Just this year we got a survey from the BLS on the contingent workers, basically people who are contractors, nontraditional work arrangements. That survey hadn't been done for 13 years prior to that because the BLS didn't have the budget for it. Essentially we're in this spot where policy makers and the labor market conversation was pointing out this looks it's an important trend but we don't have any data on it because the last time you did it was 2005.

Beckworth: Wow.

Bunker: In fact, you had researchers, Alan Krueger and Larry Katz, basically said, "We need this data." They went out and replicated the BLS survey to try to actually find trends. And then BLS, there was an effort. Congress basically said, "We should fund this to have an actual government data source on it." I think that's one of the issues is not only this realtime data that you were mentioning. That'd be fantastic. But there's other just surveys or expansions of already existing public data that would be fantastically useful. There's just not enough resources right now.

Beckworth: It's hard to justify these things to any kind of politician, whether it's President Trump or otherwise, because you don't see the immediate benefit, at least politically. But it's important, both for making the right policy decisions ... I mean the Federal Reserve needs to know in realtime what's happening. But even the private sector would benefit from this information, right? So making long-term investment decisions, I think it's very useful. It's part of, I guess, our job to communicate the importance of data. You're on the frontline, Nick. You're on the frontline of labor and data.

Beckworth: So let's talk about labor market data. Many of our listeners will understand these metrics. But I want to work our way through for some who don't and maybe to help us understand better what we already know. I want to work through some of the standard measures of the labor market. Tell me what they are, whether good, dated, useful. Let's begin with the standard unemployment rate measure. What do we know about that?

Bunker: Every month we have Jobs Day. It's usually the first Friday of the month. BLS, the Bureau of Labor Statistics releases data on the US labor market the month before. This upcoming Friday, we're recording at the end of September, so it'll be the first week of October we'll get data on September.

Beckworth: Okay.

Bunker: These releases come out basically most of the time. If you're just casually following the news, you'll hear two numbers. The first one's probably the unemployment rate. That's the most recent data we have. It's 3.9%. That's 3.9% of people who are in the labor force are unemployed. Let's unpack that a little bit. What's the labor force? I think sometimes people hear the unemployment rate and they assume, "You counted up all the people and 3.9% of them don't have a job." That's not actually what's happening. The unemployment rate comes from this survey called the Current Population Survey.

Bunker: What they do is they, it's basically people 16 and above, it's a representative sample, and they ask you, "Do you have a job?" Okay, you have a job. "Do you not have a job?" Okay, no. "Have you looked for a job recently, basically in the past month?" Okay, if you don't have a job and you search, you're unemployed. If you haven't searched recently, you're officially not unemployed because the idea here is that you want to have a measure of people who are actively searching for a job but just can't get it. So those people who are employed and those people who don't have a job and are actively searching for one, those people are in the labor force.

Bunker: Then you take that number, labor force, and you say, "Okay, of all those people who don't," and you take all the officially unemployed people and you divide that by the labor force, by the total labor force. So right now it's 3.9% of people who have a job or don't have a job and are actively looking for one are in that latter category. They don't have one. That is an indication of, hey, there's this many people either want a job because they have one or want a job and they don't have one.

Beckworth: They can't find it. Yeah.

Bunker: That's an indication of supply, that these people want to supply their labor. Higher unemployment rate, a larger percentage of these people don't have work. When it gets smaller, it's that fewer of these people ... There's less slack, that there's fewer people out there who are looking for one who don't have one. When you take the labor force and you divide it by the whole population, that's the labor force participation rate.

Beckworth: That number is never going to be one or 100%.

Bunker: Yes.

Beckworth: Because there's old people who don't work. There's students.

Bunker: There's people in college. There's people in high school.

Beckworth: People who voluntarily don't want to be working for whatever reason.

Bunker: Yeah. That's part of the reason why the unemployment rate is as a share of the labor force. Most of the time you don't want to have a measure that's counting 20-year-olds who are in college as unemployed because the sense you want from an unemployment rate is these people would like a job, but they don't have one, including those people who are thinking, "Well, I don't need a job right now and I don't want a job because I'm in school or I've retired. I've reached that part of my life where I'm no longer ..." You don't want to necessarily include those people.

Beckworth: What's the problem? There's been a lot of debates, well-known to many listeners probably. But for those who don't know, what is the problem with the standard unemployment rate measure?

Bunker: You would need in normal times, okay, well, that labor force participation rate, that's going to be fairly steady so that changes in the number of people who are unemployed if it goes down, then the unemployment rate goes down. If it goes up, then the unemployment rate goes up. The issue is that the labor force participation rate has changed. It also has a trend. It's been for the last several decades, in particular the aggregate since 2000, has been going down. So sometimes there's going to be, in particular since the Great Recession, what you saw is as the labor markets are recovering you saw a drop in the unemployment rate.

Bunker: By that measure, you saw, okay, there's fewer people who want a job not having one. The issue is that also the labor force participation rate was lowering and declining so that there were people dropping out of the labor force. So the unemployment rate is going down but then if you do a really simple just, hey, here's all these people, what percent of them have a job? It was flat because there were all these people. You think about it this way. There's, say, 50 people who are ... Let's say there's five people who are unemployed and there's 100 people in the labor force. That's an unemployment rate of 5%. Now imagine someone who's unemployed drops out and they say, "I just can't find a job."

Bunker: They're not going to actively search any more and they're, according to the BLS definition, the traditional definition which makes sense in normal times, you're not unemployed. They are just out of the labor force. So then that number, the ratio, instead of being five out of 100, it's four out of 99. That number's small. That's below 5%. So the unemployment rate in that situation is telling you the unemployment rate's-

Beckworth: Things look great, but they're not so great.

Bunker: Yeah. It went down. Well, it went down because of discouraged workers, not because that person got a job.

Beckworth: So make this concrete. In a counterfactual world, a young Nick Bunker gets out of school in 2008. He can't find work. He gets discouraged. At some point he just gives up his dream of becoming a great blogger, think tank person. That's completely gone. Knock, knock. Here's the BLS person on Nick's door. "Nick, are you looking for work?" "No." So Nick is completely swept aside. In other words, you would be considered the same as the grandparent who has retired or the student who voluntarily ... You get put in the wrong grouping, the wrong bucket, right?

Bunker: Yeah. If you look at that binary distinction of in the labor force or not in the labor force, then yeah. As I said earlier that sometimes you don't want to include those people who are out of the labor force not participating because they might not want to work. But I think in your situation, young counterfactual Nick would want to work and would want to supply labor to the labor market. But he, counterfactual me, isn't. He would like to, but he can't, so that he is getting counted as not unemployed even though if, say, there were more job opportunities, then I would reenter the labor market and then all of a sudden get counted as unemployed.

Beckworth: That's what's going on right now. We have this really low unemployment rate. I mean it is. It's low by historical standards. But what we think we see happening is there's all these people who are sitting on the sidelines who are coming back in and there may be a lot more out there than we previously thought, right?

Bunker: This is actually something that Jay Powell, chairman of the Federal Reserve, mentioned in his recent press conference after the September FOMC meeting that part of what's going on is the population's been aging, so more people have been flowing out of the labor force. But that's because part of that is due to people being older and retiring. But since basically the end of 2013 to 2018, that labor force participation rate has been flat. You would have expected it. If you just looked at demographics, people are getting older. Okay, well, it's going to trickle down. But actually it flattened out.

Bunker: So what that means is that people who are in their prime working years, actually that participation rate's been going up. As the labor market got stronger, it looks like people have started getting pulled back in. There's an actually an interesting blog post column research note from a few economists at the New York Fed that basically looked at, okay, if another way of quantifying this effect of does a stronger labor market actually pull up the labor force participation rate? What they found is that once people realized that, saw that ... You can see in the data that the rate at which unemployed people are getting a job is that increased as the labor market got tighter.

Bunker: More people seem to reenter the labor market because they're realizing, hey, these people who are officially unemployed are getting a job. Maybe I can reenter. There's more job opportunities out there so I'll get back in. So the labor force participation rate goes up.

Beckworth: Yeah. I know we're getting into the weeds, but I think this is a big point. I was going to bring it up later, but let's talk about it now. This is a hugely consequential point for policy makers, for the Federal Reserve in particular, but you could argue for fiscal policy as well. But the Fed was thinking back in 2010, 2011, '12, there was pressure on them to really begin tightening. Quit QE. Start raising rates because the unemployment rate at this point, it's no longer about the Great Recession. I mean we're two, three years out from the Great Recession. It's all structural.

Beckworth: The only reason it's going to meaningfully change is because of age, demographics. So if you took that view then there's really nothing more the Federal Reserve could do. They kind of wiped out the residual from the Great Recession. It's all about age. But what have we actually seen? I mean what you just said, right?

Bunker: Yeah. So I think there's this structural story. I think 2012, 2013, 2014, people looking at the unemployment rate, it's five-point-something. That looks fine. There's scarring from the Great Recession. This labor force participation rate is going to keep going down. There's studies by some fed economists in 2014-

Beckworth: Yeah. I'll mention some names here.

Bunker: Yeah. David has a printout of it.

Beckworth: Aaron Aaronson, et al. Labor force participation, recent developments and future prospects in 2014. Yeah. What did they come up with?

Bunker: You wish you had it on a podcast, some audio version of it. But this kind of straight down line of the population's aging. Participation rate's going to keep going down. You can, in fact some people on Twitter have, draw a line of what they thought this decreasing participation rate and then what actually happened, which is a flattening out of people actually-

Beckworth: Coming back in.

Bunker: ... remaining attached or coming back in to the labor force. That's millions of workers that if your thinking was, "No one's coming back. We should just take it as it is." Short-term macro policy can't really push on it that much. Millions of workers who perhaps seemingly would have just stayed out of the labor force and perhaps wouldn't have gotten a job, that's millions of lives that would have been deeply affected by arguments about what I'm sure some of the listeners are like ... very arcane or seemingly strange topic, that it's understanding the dynamics of these things actually have huge ramifications for policy in people's lives. That line going straight is millions of people getting jobs.

Beckworth: To be blunt, if this study from the Brookings Center, it was an article that was presented there by these economists from the Federal Reserve, their researchers there. If this article had been taken verbatim and followed to its policy conclusion, the Fed would have tightened a lot sooner, a lot quicker, and there would literally be millions of people who, since this study, who have now come into the labor force who probably would have come in because the economy would have been weaker. Is that a fair assessment?

Bunker: Yeah. I think that's fair. I mentioned-

Beckworth: That's stark. I mean that's why it's important to get these metrics right.

Bunker: Yeah. That's part of the reason why I can get riled up talking about these issues because it's important.

Beckworth: That unemployment rate measure, we still look at it. It comes out every month, as you said. It's called the U-3. Now the government has tried to get a little bit better. Tell us about this. They have another unemployment measure called the U-6 Unemployment Measure. Now how is that different from the standard one?

Bunker: There's a whole panoply of U-6-

Beckworth: Let's just jump to U6- for the sake of time. What's the U-6?

Bunker: U-6 is you take, all right, here's all the people who are officially unemployed and then you add people who are marginally attached to the labor force and discouraged, so people who would want a job but haven't looked recently or haven't looked recently enough to be counted as unemployed but have shown a desire to get a job, and then people who are working part-time for economic reasons. That's people who are working part-time hours but would like full-time hours but just haven't gotten the opportunity to get it. And then that's divided by the labor force plus the discouraged people.

Beckworth: Going back to my counterfactual example of Nick Bunker the college graduate who had a hard time in the Great Recession, you would then be included in this measure, arguably, right?

Bunker: Yeah. If I responded to the person asking the CPS questions that, "I don't have a job. I haven't looked recently, but I looked a couple months ago and I would like one."

Beckworth: I really do.

Bunker: I really want a job, but it doesn't look like there's any opportunities out there.

Beckworth: Okay. The U-6 measure is a broad unemployment measure trying to capture the discouraged worker or the worker who's part-time, not really fully employed. All right. You mentioned there's two main things that come out of this monthly report. Unemployment rate's one of them. What's the other big headline data that comes out of that?

Bunker: It's non-farm payrolls or just essentially how many new jobs were there added. In one month, hey, there were this many people employed. In the new month, how many more were employed? To give a feel for that number, in 2018, that's averaged about 180,000. You had 180,000 people in that month get a new job. There was 180,000 some odd people employed in a month.

Beckworth: Okay. Now, is there a threshold you want to get above to maintain full employment, to make sure everyone who wants a job gets a job? Is there some kind of cutoff, rough number we know?

Bunker: There's a rough number, which is that's essentially the number to keep up with population growth. That's the rate of job growth to essentially keep the labor force fairly constant. That number's actually shifted over time because of aging and slower population growth. I believe it's around 90,000 now. If you have in a month you're adding 90,000, that's roughly-

Beckworth: You're just breaking even.

Bunker: You're just breaking even. I mean what's really kind of stark and interesting is that in 2018, nine years into the recovery from the Great Recession, we're adding about double that. If you think that the labor market's really, really, super, super tight, maybe past full employment, employment growth shouldn't be growing that much because there should be fewer people out there on the sidelines to pull in. And yet, nine years in we're still seeing really high and strong employment growth.

Beckworth: One of the longest expansions or, in planning, it's one of the longest runs where we've had quite a bit of robust employment growth every month, and then on top of that we haven't seen a big spike in wages. So if you would imagine if we were tapped out, we're just looking around the corner. "Where's someone who could come work for me?" You start to bid wages up to pull them. We haven't seen that. So all of this circumstantial evidence suggests that there's still people on the sidelines, still residual people from the Great Recession who are just slowly working their way back in.

Bunker: Yeah. The hole that the Great Recession dug is really big and we are still climbing out. While the unemployment rate's at 4%, that might not mean exactly what it did in 2000. There's other signs out there that show, hey, we got room to run. We're still not completely out of the hole.

Beckworth: Well, Nick, this is a great segue because the unemployment measure's not doing a good job. There's all circumstantial evidence that says maybe there's still people looking. Do you have another measure? I know you do. I'm setting you up. Do you have another measure that is better informing, a better indicator?

Bunker: It's called the Prime Age Employment Rate or the Prime Age EPOP. Essentially, it's a really simple number. If you think of the unemployment rate as just how many people are there and what percent of those people have a job and then prime age is saying, okay, well, you don't want to include in that population people under 25, basically people who are in school, doing training, and then 55 and above. Those are people who are at the tail end of their career. Perhaps they're retiring. So you want to look at people who are in their prime working years. That's 25 to 54.

Bunker: It's, "Hey, everyone between 25 and 54, do you have a job?" Yes. Okay, cool. You get counted. If you don't, then you're not in this measure. What this measure does is it doesn't have the same problems that you have with unemployment rate due to changes in labor force participation rate. There's no intermediate stage of, well, I don't have a job but I think I want to look for one and then making that decision and that fuzzy line between out of the labor force and in the labor force. This is just simply it's binary. It's do you have a job or not?

Bunker:  I and a few others have shown that there's a fairly strong relationship between the level of the prime age employment rate and wage growth, in particular, measure of wage growth from the employment cost index, that if you do a correlation of aggression of the unemployment rate and wage growth, the unemployment rate isn't very good or predictive in the last couple years, but the prime age employment rate is. Every quarter when we get this employment cost index data, you can say beforehand, "Okay, based on data from the early '90s, we think wage growth is going to be this given what percentage of prime age people had a job in that quarter."

Bunker: In the last year or so, it's been pretty dead on that it predicts wage growth and I think importantly for this conversation about slack, that number which is currently 79.3, that's still a little bit below the level we saw in 2007 and still below the level that we saw in 2000. So it hasn't recovered from the Great Recession yet and it didn't even recover from the 2000 recession.

Beckworth: Okay. Unlike the unemployment rate, which is well below or it's crossed the point where it was before. So if you look to the unemployment rate, say, okay, we're back to normal. This other measure of yours, this employment rate for working-age people is actually indicating we still have some distance to go.

Bunker: Yeah.

Beckworth: Now, I heard I don't know if it was from you or one of these other authors that you've talked about, reframed the name of this. They use the term working-age employment rate. To me, that's an accessible way to market it because when you say ... Let me use a term that you almost used, Prime Age EPOP. That EPOP stands for employment population. You run that by the average person on the street, "Hey, what's the Prime Age EPOP?" They're like, "What?" If you say working-age employment rate, that's very intuitive, very clear. There's some kind of marketing that needs to be done here, right?

Bunker: Yeah. I used EPOP for the longest time in talking about this and I would see people's eyes glaze over or people just would be like, "What are you talking about?" It's shorter, so it's easier on Twitter. But perhaps that's not the best guide-

Beckworth: Twitter followers understand.

Bunker: Yeah. That's characters limits and stuff. Perhaps that's not the guideline for discourse and how to actually engage with people. So yeah. I agree that using the working age within the CPS working age is a slightly different-

Beckworth: Defined differently.

Bunker:  Differently. I still like prime age, but ...

Beckworth: I see, because working age can be lower than 25.

Bunker: Yeah.

Beckworth: Okay. That's fair. But the basic idea is able-bodied individuals, their prime period-

Bunker:  People who you'd expect to work, what percentage of those people.

Beckworth: Yeah, what percentage of them. Much easier. Okay. That measure tells us there's still room to go. Our recovery still has a life left unless the Fed cuts it short. Recoveries don't die of old age. They die of recessions caused by bad policy or incorrect policy. Okay. We've gone through all of this. Let's now move to another interesting measure of the labor market, one that you've been champion and, I would daresay, one of the better-known champions of and that's JOLTS.

Beckworth: You mentioned earlier the employment numbers that come out, the number of new jobs created. That's actually a big deal, the Job Day report. Quick question and we can go back to that. Why does the market care so much about the employment numbers every month? I mean it's like the stock market responds. Interest rates on treasuries respond. What is it about the employment numbers that people care about so much?

Bunker: That employment report, it's the highest frequency, high-quality data that we have on the US labor market. So if you want a good snapshot of the health of the labor market in one month, those data are going to be your best indicators. I think the reason why the market and the media covers it so much is because I mean for the last decade this has been the Great Recession, its recovery, incredibly important. Also therefore the Fed's been really interested in this. You'll have some reports where, I think, earlier this year there was a spike in wage growth. Markets were like, "This means the Fed's going to increase-

Beckworth: Interest rates.

Bunker: "... interest rates and it's going to have this huge importance." It's the best possible data that we have. It also is subject to revision. It's one month and their margin of error is the next month. The wage growth number jumped down a little bit. It's like, "Oh wait." It's incredibly important. It's high frequency. It's the highest quality. It basically is a good indicator of what's going on in the labor market.

Beckworth: So markets think the Fed's going to respond to this, tighten lower rates.

Bunker:  Yes.

Beckworth: One other thing, I know we need to get to JOLTS. One other thing about the employment number, number of jobs created is that we talk about the numbers for the last month. What were they last month? 180,000?

Bunker:  Around that.

Beckworth: Okay. The truth is that actually it wasn't 180,000. Those are seasonally adjusted numbers.

Bunker:  Yes. They are seasonally adjusted with a margin of error.

Beckworth: It's kind of, I don't know, bizarre. I mean it's appropriate on one hand but, on the other hand, if you were really honest with the person on the street on how many jobs there were last month, there might be some number way different than 180,000. But it's what we use because we need to compare it to the previous month, right?

Bunker: Exactly. Yeah. These data go back to the '40s. So there's a long baseline of reference. But it is true. In moments where we're all having ... People are on Twitter responding to things. Perhaps it would do us some good to remembering, no, there's margins of errors. It's one month.

Beckworth: I mean this generally is not an issue. Seasonally adjusting your data is not an issue. It makes a lot of sense. At the end of the year, if there's a big pickup in Christmas or holiday season hiring, you don't want to confuse that for a sustained change or trend. However, there has been a problem. How do you properly seasonally adjust? Wasn't there an issue a year or two ago that it was brought up that the Great Recession is such a big disaster, it's kind of messed up the ability to seasonally adjust your data?

Bunker: Yes. There was an issue with the GDP reports, Q1, that there was the term is residual seasonality, that seemingly Q1 GDP reports were consistently low, that it seemed like, hey, it looks like the seasonal adjustment isn't picking up that Q1 in 2008 and 2009, well, strictly 2009 was not great. So the seasonal adjustment was shifting down growth. My understanding is the BA dealt with that-

Beckworth: Okay. It's working on it. All right. We have to be honest that this data is seasonally adjusted. All right. Let's move to JOLTS. I want to make sure we don't ... For the older listeners my age, Nick obviously is quite a bit younger than me. But those of us who were alive in the 1980s might be confused with the original energy drink called Jolt. I don't know if you ever heard of Jolt, but it was the original ... They didn't call it energy drink, but I remember the ad back then was, "All sugar, twice the caffeine." That was pretty radical in the '80s.

Beckworth: I was like, "Whoa." My parents wouldn't let me near one, of course. Now, Jolt would be mild. For the old listeners, we're not talking about the famous energy drink. We're talking about labor market measures. Tell us about it.

Bunker: JOLTS stands for the Job Openings and Labor Turnover Survey. What these data are, if you think about the employment situation, so we were talking about that how many jobs were added on net in a month, 180,000. For the purposes of this sample, let's just round it up for 200,000 so I can do the math here in my head. Often in new reports, that number will get reported as these were how many people were hired in a month. It's technically not true. That's how many jobs were added on net to labor market. Actually the number of people hired in a month can be 5.4 million people.

Beckworth: Wow.

Bunker: That number you got from the jobs report is, okay, the total level increased by 200,000 people, jobs. The thing is, jobs also get destroyed and jobs get created. So in a month there's lots of churn going on that people get laid off, people quit their jobs. But then also people get hired, either if they're already employed or out of labor force or unemployed. So a month where 200,000 jobs get added on net could be the result of 5.2 million jobs being destroyed, so 5.2 million separations and 5.4 million hires. So it's a bit like an iceberg. You see that little bit above the water-

Beckworth: I see. Yep.

Bunker: That's the net employment number, but there's all this stuff going on underneath the water that's a lot of the gross turnover-

Beckworth: So net versus gross. There could be huge gross turnover. They have a number of indicators. They have hires and you have separations in the JOLTS data. Under the category of separations they've got quits, layoffs, and discharges. One of the counterintuitive things, at least when you first think about it, for me at least, is that quits may be a good thing. You'd think, quits. If someone quits, how is that different than layoffs and discharges? Why would we be excited to see quits go up?

Bunker: You think of all these kind of separations. There's a relationship. A job can end for two ways because one side ends it. The employer says, "You know what? This is not tenuous any more." On the other side, the worker's saying, "You know what? I'm moving on. I'm doing something else." So when the labor market is bad, rough, recession, most of the time what you're going to see is a lot of those separations are going to be mostly discharges and layoffs. Employers saying, "We're not making money. We can't afford to pay this labor cost any more. We're letting you go." Quits go down because people who do have a job are looking around the labor market.

Beckworth: They're hanging on to dear life.

Bunker: They're realizing, "There's not many opportunities out there. I need this job. I need to pay my bills." But then as the labor market gets stronger and the economy's healthier, businesses are making more money. They can not only hold onto the workers that they're already employing, they're probably ramping up hiring as well. On the other side, workers are looking around and saying, "There's opportunity now. There's all these open jobs. I can maybe apply to one or get recruited and get hired." So as the labor market tightens, more and more people are getting offers or they're saying, "I'm going to go look, find one, and leave."

Bunker: They are the reason for the separation and that's called quitting. Quitting is a sign of a healthier labor market, that people are looking around and seeing more opportunities. They have some bargaining power. Hopefully they're getting a raise or better benefits or working conditions, so they're moving on. That's also other employers hiring them. So you have this people going up the job ladder basically. Maybe in a recession they were in a job and it wasn't a great fit for them, but then as the labor market's healthier, there's some other employer has posted a job. This worker thinks, "I'd be great for that job. I have the right qualifications. It's better pay or benefits."

Bunker: They apply to it and they get hired and they move up. That new employer is expanding, hired a new worker. And then the worker themselves got a pay raise and then the old employer turns around, "Well, we have to fill So-and-so's old job." Turn around, maybe it's an entry-level job. Hey, this person's just looking for a job for the first time in a while. We hire them on. So people kind of get pulled into the labor market through that chain of events. Yeah. It's counterintuitive. Quitting has a negative connotation. But in this sense, a higher rate of people quitting is a good thing.

Beckworth: It's a good thing. We want to see the quit rate high. Now, how far back does the JOLTS data go?

Bunker:  It only goes back to December of 2000, which is when it…

Beckworth: Okay. But it would be great to see this data, if it were available, back into the '90s because I imagine the late '90s the quit rate would have been really, really high, right?

Bunker: It's not exactly the same thing, but there's been some research done using micro data from the CPS. Because they had a question in the early '90s that essentially was, "Are you employed?" Yes. "Are you working for the same people you were working for last month?" Some researchers used that and managed to get a measure of employment to employment flows, which is basically if you were employed and got another job. That number you look at, it was rising and high in the '90s, goes down after the 2000 recession, goes back up a little bit for 2007 and it goes down. It's been increasing a little bit, but not that much since the Great Recession.

Beckworth: Just to put this in context, the late '90s, mid to late '90s is considered one of the more recent examples of a very healthy labor market where people find lots of jobs. It's robust turnover. It's a good time to be a worker. Whereas 2008 to really the recent period has been there's more power on the employer's side, the firm's side because there's an abundance of people. Economy's weak. It means more choices for the worker if you've got higher quit rates. When I quit my academic job and I came here, that would have been a sign that things were getting ... at least one little data point.

Beckworth: You, yourself, you went from previous employer to Indeed. Did you make a joke about this on Twitter?

Bunker:  I did. I did.

Beckworth: Okay. I thought so. Yeah.

Bunker: The JOLTS data come out two months after the reference period, so it was August when the June data came out and I switched jobs in June. I was actually on vacation and Sam Bell was, "Are you really going to miss this report?" I said, "Of course I'm not. It's the one I hypothetically would be in."

Beckworth: I contributed to the JOLTS report. Yes. It's a great thing, I mean when you can ... Again, I enjoyed my previous job at a university, but a new, interesting opportunity came up and with better pay and I took it, here at the Mercatus Center. But that's a sign that there's healthy churn in the labor market. Okay. Let's talk about another indicator. Well, before we leave JOLTS, I just want to let Nick say one last thing. You are a big fan. You promote JOLTS Day. Tell us. For our listeners, when does JOLTS Day occur relative to the Job Day?

Bunker: Usually it is the Tuesday after Jobs Day. So if Jobs Day is Friday morning, most of the time it's the Tuesday after at 10 a.m.

Beckworth: Okay. Mark your calendars, JOLTS Day.

Bunker: Mark your calendars. It's at 10 a.m., not 8:30 a.m. So if you like to sleep in a little bit-

Beckworth: There you go.

Bunker: It's slightly easier to follow along with.

Beckworth: Especially for those who are maybe in the Central time zone and beyond. They can appreciate the folks putting JOLTS Day a little bit later in the morning. Okay, let's go to the Beveridge curve. This is another labor market indicator that was used a lot and talked a lot about during the Great Recession. What is it?

Bunker: One of the series we get from JOLTS is job openings. This is how many vacant jobs there are, potential hiring. What's the amount of jobs the employers would like to hire but haven't filled quite yet? So what the Beveridge curve does is essentially look at the relationship between the level of job openings relative to total employment versus the unemployment rate. It's the idea of it should be downward, again ... Verbally graphing here, so bear with me. The idea is that there's an inverse relationship, that it's a downward sloping line. As employers are increasing job vacancies that they want to hire more, the unemployment rate should go down as workers who are unemployed are flowing into those jobs.

Bunker: When the unemployment rate goes down, job openings should go up. When job openings go down, the unemployment rate should go down. The issue is that you had this clear line from 2001 to 2007 prior to the recession. And then as we started recovering from the Great Recession, what people saw is that job openings started increasing but the unemployment rate wasn't falling as much as you would have expected given that prior relationship. So it seemed, to use the terminology, that the carpet shifted out. Some people looked at this in 2010 and 2011 and said, "The reason this has happened is because unemployed workers are unable to get hired by these firms."

Bunker: The firms are posting vacant jobs they'd like to hire, but they're looking at the unemployed workers and not hiring them for some reason. So that was an argument for this kind of structural unemployment story.

Beckworth: Another structural argument.

Bunker: What happened over time is as we got more and more data and the recovery started strengthening, that employers still were posting more jobs but the unemployment rate kept dropping and dropping. So it's shifting back over towards that 2001 to 2007 line. Now if you look at the most recent data, it's hard to distinguish points from the latest data in 2018 from 2001. It looks like that the relationship between-

Beckworth: It's still a robust, sound relationship?

Bunker: It looks like it was prior to the recession. So that shift out that got interpreted as a structural issue with unemployed workers, it's hard to buy that story now.

Beckworth: So really there's been a lot of interesting arguments put forth through different measures, through unemployment rate, through the labor force participation rate, through the Beveridge curve, where people were all saying anywhere from 2011 to 2014 the part of the labor market that was affected by the Great Recession is over. Anything else is all structural. Structure is structure. We can't change it with monetary policy. We can't change it with goosing up or stimulating the economy, so just to sit back, accept our fate.

Beckworth: What all of these measures have shown, all of them to the last one have shown that given enough time to heal, given a robust economy, they actually were pointing toward cyclical excesses left. They were pointing to people still sitting on the margin who now can come into the labor market. So it's a good thing that the Fed did take its time. One can argue and Adam Ozimek on the show, he's made this point. I think you made this point that you can argue right now whether they're getting ahead of themselves. But the more general point is over the past decade it's probably good that they did take as much time as they did and keeping monetary policy easy in a normal light in monetary policy.

Bunker: Yeah. I totally agree with that assessment that five or so years ago there were lots of people out there saying, "We've done it. There's nothing more we can do. It's unfortunate. Perhaps we could have done more in 2008, 2009 to help people but there's ..." History says that people are locked out, that the damage is done and it's hard to reverse it with the tools of monetary and fiscal policy. I think what the last five years have shown is that those people were too pessimistic about the ability of a tighter labor market to actually pull people in.

Beckworth: Nick, this gets us to a point that JW Mason made on the show and that others have made as well that, to some extent, not fully but to some extent that the supply side of the economy, the potential, its capacity can be influenced by how hot you run the economy, by demand. The analogy I like to use and I've used it before multiple times on the show so some listeners will recognize this, is that if you are someone who was bench pressing 500 pounds, I'm sure that was you, Nick, 500-pound bench press. And then suddenly this big disease, this big crisis hits you and you're not going to the gym. You're not exercising. It's the equivalent of for recession, the Great Recession.

Beckworth: Suddenly, your bench press falls down to 200 pounds. You've lost 300 pounds. At the moment, that is your capacity. You could just give up. "It's all I'll ever bench press, 200 pounds." But if you go back and you work hard. You pick up the heat. You get things going. You gradually can work back up to that 500. I think that's kind of what we're seeing here. The structurals would have said, "200 pounds is all we can bench press in the US economy." The others are saying, "Well, let's at least try. Let's try for 300. Let's try for 400. Let's go to 500. Let's get back to where we were." I think that's the point JW Mason made and that others have been making.

Beckworth: So now the debate would be let's keep pushing the limits. Let's see if we can get back up to 500 pounds in a bench press.

Bunker: Yeah. I think the argument is that, in particular ... Let me put it this way. I'll just go back to this labor force participation rate. If you looked at the data, you realized a lot of these people were dropping out because they didn't see any opportunity. I think you were hearing stories of people saying, "Well, it's people don't want to work or employers just don't want to hire them." Without getting to the point of, well, we don't see any evidence of them not hiring, that there was this story of there's some scarring from these workers. While there are supply-side issues with the labor market, I think since the Great Recession it's been fairly clear that most issues were demand side, that you can't really get a test of these hypotheses of they won't hire them until you get to the point you can actually see that.

Bunker: I think one of the issues with macro policies sometimes is a hesitancy to get to that point where you're actually seeing if people ... testing these hypotheses. Because there's been talk about if the unemployment rate gets too low, inflation might pick up, the Phillips curve relationship. I think the last couple years have shown that that's fairly flat, that you can let unemployment be quite low and perhaps be below its natural rate. Inflation's not going to pick up that much. So the cost for doing this kind of pushing on how strong a labor market can get is fairly small.

Bunker: For example, the Federal Reserve has a dual mandate. One of them is inflation. You want to keep those expectations firm and around 2%. But also you want to make sure that as many people can get employed as possible. There's maximum employment. This hesitancy to really, truly test the limits of maximum, I think could be an issue.

Beckworth: In that regards, President Trump actually is doing an amazing thing. He's running a natural experiment. His fiscal policies are pushing up against what the Feds want. But they are adding a whole lot of extra heat to the economy. If the Fed does tolerate it, it'll be interesting to see how far this can go. Well, in the time we have left I want to move away from cyclical stories, which we completely agree on, to genuine structural stories, so long-term developments that did exist before the Great Recession, legitimate issues. I want to speak about an interesting phenomenon.

Beckworth: This is the men's labor force participation rate. So the number of men who actually are in the labor force has declined for a long time. I mean I was looking all the way to the 1950s to the present. There's been almost a straight line, not quite, but a declining. If my numbers were right, I was looking at FRED database. In 1950, 87% of men were in the labor force. Now it's down in the 60s. Why is that the case? What's happening that men are, in a kind of persistent basis, leaving? So again, we're not talking about the cyclical part. We're talking about this long-term, multi-decade story. Why are men not in the labor force as much as they used to be?

Bunker: I think that trend gets even more striking when you cut it by prime age. So it's 25 to 54 prime age male participation was in the 90s, like 95% in the mid to late '60s and now it's also dropped. What's really striking about this is that male participation has been going down while female has been going up.

Beckworth: Yes.

Bunker: That's, I think, an important context there. If you look at the aggregate out-breaking by gender, it is going up until 2000 and then it starts going down. It starts going down in 2000 when women's participation rate starts going down. But to turn back to men, I think there was a really excellent report by the Council of Economic Advisors back in 2016 that looked at these questions and tried to untangle them and look at the literature. What they pointed out is that a lot of this decline in the male labor force participation rate is of workers who have less education, so lower wage, less-skilled workers.

Bunker: That's really it's been declining for pretty much all male groups, but it's been strongest for these folks at the end of the skill or wage distribution. You think about, okay, well this is if you think about labor force participation as a labor supply, what's causing this? Could it be that men have decided, "I don't need to work any more?" You could look at there's an increasing female participation rate. Maybe men are married to women who are increasing work more and, "Maybe I don't need to work. I don't need to work." There's some supply-side shock there. But if that were true, you'd expect wages for prime age men, and particularly at the bottom, to be going up more.

Bunker: But what we've actually seen has been a relative decline in wages of low-income, low-wage men, the same group that's been dropping in labor force. So it's been there's reduction supply but also reduction in the price. That indicates it's more a structural decline demand for these kind of workers. That might point towards automation or increased international competition due to globalization as potential forces that are reducing demand or changing demand for the kind of skills that people have and that's reduced the demand for these kind of workers and has resulted in them dropping out of the labor market.

Bunker: Part of this too could also be government institutions, like job retraining, those kind of issues aren't doing a good enough job. Or active labor market policies aren't doing enough or could be reformed-

Beckworth: To retool them.

Bunker: ... to retool people, help them find jobs that would be a good fit for them and that there's an opportunity to reverse this structural trend. But a lot of it is just that there seem to be fewer opportunities for employment for those kind of workers.

Beckworth: This is kind of the hollowing out of the middle class argument. Is it David Autor who makes this case that you look at where the job growth has been, the creative class, the high school folks, lots of robust growth there, low-end jobs that don't require much education, but very interactive, one-on-one where females have probably been engaged a lot more. In fact, there's some interesting pieces that some of these men are reluctant to take on roles that they think are for women. So the men with high school degree or less, there's too much machismo. They don't want to do a job that a woman should do.

Beckworth: But the bigger story is this hollowing out of the jobs that you could used to do due to automation, robots, machines, and then globalization. This is not going to go away, right? This will continue to be a problem moving forward. I guess it's going to be a change in education priorities, change in opportunity for retooling.

Bunker: I think also perhaps showing people, hey, there are good-paying jobs that you might not think are the jobs for you, like nursing.

Beckworth: Right.

Bunker: There's a shortage of nursing talent out there. Lots of men could do those jobs, but it's mostly been a female one. So it's the change in norms.

Beckworth: It's a change in culture and norms. Yeah. Over time, maybe that will be a fix for that. There's definitely long-term issues in our labor market that need to be worked out. We focused mostly on cyclical, the result of the Great Recession. We have a few minutes left. There's a few more things I'd like to get to. I don't have time to do all of them. But there's been some other developments that we've talked about on the show and I'd like to hear your take on them, again, long-term structural developments.

Beckworth: I want to mention just a few. One, there's been decline in fertility rates, so we're having fewer babies which is kind of a natural by-product of being an advanced economy and women going to work, more opportunities for them, the higher opportunity costs for children. You add on top of that the administration now is really pushing for lower legal immigration, so we're not going to get ... My own fear is that it affects future labor supply for us. But on top of that, we have declining labor mobility, so people aren't packing up and moving to where the jobs are. What is your take on this? Where do you see it going?

Bunker: I think there's this interesting interplay between future labor supply and current labor supply. You think about, for example, fertility rates, that there's lower fertility rates and that's going to have an effect on future meta workers out there. But there's also the fact that part of the reason you're seeing declining fertility rates is also couples, certain women would like to have more children but the working arrangements we have in the United States are not conducive to work-life balance. So that actually there's been research looking at since 2000 in the US, women's participation's been going down.

Bunker: Other high-income countries, it's hasn't. It's been flat to rising in some. One big difference between the United States and those countries is the US has less-

Beckworth: Parental leave.

Bunker: ... parental leave. It's not legislated in the United States to pay leave, but other countries it is. There's other institutions set up to help parents deal with raising a child and working in the paid labor force so that it could be, on the one hand, you could have a kid but you might find it difficult to stay in the labor force. That could be pulling down current. Or someone could say, "I enjoy my career. I'd like to stick around and advance in it." But they're having fewer kids. It's this interplay of, okay, also could be pulling down current labor supply and projecting forward.

Beckworth: Is there evidence in the research literature that there's ways to reverse that? Can we get fertility rates up? Is that an easy task or not?

Bunker: I will be frank. I don't know that research quite well. But I think fertility might be hard to increase but-

Beckworth: That's my sense too.

Bunker: If you want to increase labor supply, there are lots of people out there who would like to work in the United States-

Beckworth: Legal immigration.

Bunker: Legal immigration.

Beckworth: Right. I agree. That, to me, is another concern I have, where the administration's going. We need more legal immigrants, their education. They can bring their human capital in where they're going. What is your take on the declining labor mobility in the US? Why aren't people packing up and moving to places where there are jobs?

Bunker: I think there's two interesting hypotheses. I think this is a really important open question. I don't really have a firm handle on what's going on. One, I think, is there's research that the main reason why people pack up and move is because they got a new job. There seemingly has been a decline in the return to getting a new job so that if the bump from getting a new job is less, then you're going to be less likely to move. Another hypothesis is labor markets are actually getting more similar across the country.

Bunker: For example, more people work in healthcare. Healthcare's in every city. There's less incentive to go move because, hey, this industry's only in that city. There tends to be more jobs. It's a big important open question. But I think those are two-

Beckworth: So there could be a benign reason for the decline in labor mobility. We wouldn't be too worried about it. But then there's more a malign interpretation. So which one it is is consequential. Okay. With that, our time is up. Our guest today has been Nick Bunker. Nick, thank you so much for coming on the show.

Bunker: Thanks so much for having me.

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