Category Archives: labor

New Job Gains for March 2022 Shows Businesses Open with Jobs to Offer: CEI Analysis

This press release was originally posted at cei.org.

The federal Bureau of Labor Statistics announced today that the U.S. economy added over 400,000 jobs in the month of March – good news for policy makers to build upon with spending and regulatory restraint.

Statement by Sean Higgins, CEI research associate:

“After more than two years, the economy has nearly crawled back to where it was before the Corona virus outbreak thanks primarily to the rolling back of the pandemic’s restrictions. March’s gain of 431,000 jobs, which brought the unemployment rate down to 3.6 percent according to the Labor Department, was impressive. But the more noteworthy news was the number of people said who said they were unable to work because their employer closed or lost business due to the pandemic was now 2.5 million, down by 1.7 million from the prior month. That more than accounts for March’s gains and reaffirms that the best thing the government at all levels can do to aid the recovery is to simply get out of the way and let the economy repair itself.”

Statement by Ryan Young, CEI senior fellow:

“The latest numbers provide further evidence of the COVID economic recovery. The most encouraging news is just under the surface, in the labor force participation rate. Today’s low 3.6 percent unemployment rate doesn’t tell the whole story, because it only counts workers who are actively seeking jobs. During the worst of COVID, many displaced workers didn’t even bother looking for work, due to safety and regulatory concerns.

“Before COVID hit, labor force participation was 63.4 percent. It quickly bottomed out at 60.2 percent when people first hunkered down — the lowest level since 1973, when there were far fewer women in the workforce. It is now at 62.4 percent, closer to pre-COVID levels than to that big COVID drop. There is still a ways to go, but barring another variant, the recovery will continue. It would go even faster if politicians used up fewer resources in their big spending bills and removed never-needed regulations that block opportunities for millions of people.”

Pay College Athletes

No March Madness tournament would be complete without at least one school being caught paying its players in violation of NCAA rules. This year, the Memphis Tigers allegedly did the honors. In a piece syndicated by Inside Sources, I argue that the NCAA should allow colleges to pay their players for three main reasons:

The first is fairness. College players are unpaid laborers who generate millions of dollars for others.

The second is that big-time college sports are, in fact, a business. There is nothing amateur about the NCAA’s $1.15 billion in revenue, its marketing deals, college coaches’ and athletic directors’ salaries, or the amount of time many athletes put in to compete at a high level.

The third reason is practical: Black markets exist. Some star college players will always be paid, no matter what the NCAA says. It should be above the table so schools and the NCAA can keep a better eye on it.

Read the whole thing here.

The New Office Normal

What is the best workplace model for employers to follow as COVID-19 (hopefully) continues to wind down? In an Inside Sources op-ed currently being syndicated, I argue that there isn’t a single best model. Employers and regulators both need to be ready to continuously adapt:

Moreover, people’s needs for flexibility will outlast COVID. Someone with small children or who is caring for elderly family members might be unable to work traditional office hours. But they can do gig work on a flexible schedule if they want to.

But it’s not all upside. We found out the hard way that remote education works poorly. Many jobs can only be done on-site, from manufacturing to haircutting. For much of the economy, the traditional commuting model isn’t changing anytime soon.

What should policymakers do? Be as flexible as possible. Let workers experiment. Let employers make mistakes and learn from them, at their own expense. Loosen burdensome zoning and occupational licensing rules. Avoid policies like California’s gig worker law, which put thousands of independent contractors out of work before the major parts of the measure were repealed via ballot initiative.

Read the whole thing here.

U.S. Economy Adds 678,000 Jobs in February, but Inflation, Russia, Government Mandates Remain a Problem

This press statement was originally posted on cei.org.

The U.S. economy added 678,000 jobs in February, according to newly released government figures. CEI economic and labor policy experts praised the good news and cautioned against government spending and regulations that will hinder the recovery.

Ryan Young, CEI Senior Fellow:

“Once again, economic news has moved in step with the virus. Case counts and severity have been going down for weeks, so people are opening up more. And now authorities are loosening mask mandates and other measures. No wonder more people are going back to work. The virus is now on the edge of no longer being the most important economic indicator, barring any new variants.

“There are challenges ahead from inflation and from Russia’s invasion of Ukraine.

“The Fed will likely soon raise the federal funds rate and end its bond-buying program in order to fight inflation. Employers might react to this by decreasing hiring and investment somewhat until things stabilize. But the long-run benefits of stable prices will be more than worth it. 

“Vladimir Putin’s hubris will cause oil prices to rise for some time, but Congress and President Biden can help by repealing the Jones Act, which raises domestic shipping prices so much that it is often cheaper for refiners near coasts to turn to foreign oil instead, often Russian.”

Sean Higgins, CEI Research Fellow:

 “The continued decline in the employment rate, which fell to 3.8 percent in February, is further proof that the best remedy is to roll back the Covid pandemic restrictions and allow the economy to heal itself. The Labor Department reported Friday that only 4.2 million people were unable to work in February because their employer was closed or lost business due to the pandemic. That was down from 6 million who faced the same problem in January. That 1.8 million worker shift more than accounts for February’s overall gains of 678,000 jobs.

“New federal spending programs, minimum wage regulations, other government mandates aren’t needed to get us the rest of the way back to where we were in February 2020. We just need to put the pandemic behind us.”

U.S. Economy Added 467,000 Jobs in January 2022, Signaling No Need for Govt Meddling

This press statement was originally posted on cei.org.

The good news jobs gain in January gives President Biden and Congress ample reason to step back and let businesses and workers chart a path to recovery, say CEI experts.

Statement by Ryan Young, CEI Senior Fellow:

“The latest job numbers give another reason why the America COMPETES Act is unnecessary. Even without the massive corporate subsidies in the bill, employers added 476,000 jobs to their payrolls. The fact that the jobless rate edged up from 3.9 percent to 4.0 percent is actually good news. That number only includes workers who are actively searching for jobs. So if it goes up even as the economy adds 476,000 jobs, that means labor force participation, which has been depressed for most of the pandemic, is going up. Congress did the right thing in scuttling the never-needed Build Back Better bill. With the national debt now over $30 trillion, the America COMPETES Act should also be scrapped.”

Statement by Sean Higgins, CEI Research Fellow:

“The Labor Department’s report Friday that U.S. employers added 467,000 jobs in January is further proof that the economy can recover if it is simply allowed to do so. Despite the gains, the unemployment rate remained stuck at 4 percent due mainly to the lingering consequences of the Covid-19 pandemic and its restrictions. The number of people who reported that they had been unable to work because their employer closed or lost business due to the pandemic was 6 million, nearly double the number for December, and 1.8 million people said the pandemic prevented them from looking for work, up from 1.1 million who reported that last month. Nothing more sophisticated than getting past the pandemic and removing the related restrictions is needed to get the economy back to full health.”

Thankful for Good Economic News on Jobs, Consumer Spending: More to Do

This statement originally appeared on cei.org.

During Thanksgiving week, jobless claims dipped to 199,000, their lowest level in 52 years, when the country’s population was less than two thirds of what it is today. October consumer spending grew 1.3 percent, leading to optimism about a strong holiday season. CEI senior fellow Ryan Young comments:

“It’s nice to have two bits of good news going into Thanksgiving. Jobless claims are back below 2019’s pre-COVID levels, and consumer spending increased in October enough for retailers to expect a healthy holiday season. This provides more evidence that the economy is mostly healthy, but for COVID. The more we beat back the disease with vaccines, the more people feel safe opening up. Washington’s big spending bills, which won’t begin spending money in earnest until next year, were never needed in the first place.

“There are still notes of caution. Inflation remains high, and all that deficit spending will likely make it a few tenths of a percentage point worse for several years going forward. This will make the Fed’s inflation-fighting job even more difficult. It is also possible that October’s big consumer spending increase was a reaction to clogged supply networks. People may be doing their holiday shopping early in anticipation of longer shipping times and possible shortages. To the extent this is the case, people aren’t necessarily spending more, they’re just spending earlier. In the meantime, Congress and President Biden can help by spending less, and removing trade barriers and regulatory sludge that are distorting supply networks and clogging ports.”

Jobless Claims Just Fell, but Government Barriers Remain a Problem

This press statement was originally posted at cei.org.

The number of new jobless claims fell below 300,000 for the week ended Oct. 9 — the first time since COVID-19 hit. Continuing claims fell to 2.59 million people, also the lowest level since the pandemic, but still slightly higher than average. CEI Senior Fellow Ryan Young credits increased COVID safety and a decline in government benefits and urges governments to do more to reduce barriers and resist the urge to splurge:

“One reason for the decline is expiring benefit program extensions, although the number of job openings remains at record levels. While economic fundamentals are in decent shape aside from inflation, the economic recovery is not in the clear just yet.

“The single biggest factor in the recovery has nothing to do with politics or policy—it’s COVID safety. People open up when they feel it’s safe to do so, and they close back up when they don’t. This explains a lot of the yo-yo effect in economic indicators since the pandemic began. Vaccination rates are not yet where they need to be to prevent or slow the spread of new variants, and the FDA has yet to approve promising new treatments, such as vaccines for children under 15 and a pill that can be taken at home.

“There is still plenty that policymakers should do, though. They should scrap the big infrastructure and spending bills. Not only would these add to inflation and debt, they would take enormous amounts of resources away from consumers and capital-needy businesses, and spend them on political projects instead.

“Permits, licenses, and other barriers make it difficult for businesses to adapt to COVID-era conditions and hire new employees. Trade barriers are contributing to supply chain problems that could put a damper on holiday spending. Lightening these loads would improve people’s lives as well as economic indicators.”

IRS Licensing of Tax Preparers Is Ripe for Abuse

Roughly a quarter of all jobs in America now require some sort of occupational license. Sixty years ago, it was about one job in 20. Should tax preparers join the list? The Taxpayer Protection and Preparer Proficiency Act of 2021 (H.R. 4184), introduced by Rep. Jimmy Panetta (D-CA), is the latest legislative attempt to do so. CEI signed onto a coalition letter this week, led by the Institute for Justice, opposing the idea.

The bill is being marketed as a consumer protection measure that would ensure that taxpayers are guaranteed quality service by a knowledgeable tax preparer. In practice, it would harm both consumers and small tax preparers. Like many occupational licensing requirements, licensing of tax preparers is economic protectionism. It would favor big accounting firms over small preparers, while raising consumer prices. The IRS’ ability to approve and deny licenses would give it an additional tool to threaten tax preparers and abuse taxpayers. And it would potentially open black markets for unaccountable “ghost preparers” who work outside the system.

First, the rent-seeking argument. H&R Block and other big firms can afford the time and expense it would take to get their employees licensed. But thousands of individual tax preparers who work part-time to help make ends meet, cannot. They would go out of business, and their customers would have no choice but to turn to the big firms. Actions speak louder than words.

Second, the power to grant licenses is also the power to take them away. If the IRS believes that a tax preparer advocates a little too hard for her clients and saves them too much money, it can put that preparer out of business. Under the bill, the IRS only needs to show in a hearing—which it convenes, for which it sets the procedures, and where the participating personnel are on its payroll—that a preparer is “incompetent” or “disreputable.” These terms are defined so vaguely under 31 U.S. Code § 330 that the IRS can use them almost any way it wishes. Penalties include fines to the preparer and her client, censure, and loss of license.

Third, licensing requirements would open up black markets for “ghost preparers.” Licensing is not free, and businesses pass their increased costs on to consumers. That means people can get cheaper tax preparation services by going to unlicensed “ghost preparers” who do not sign their name onto clients’ returns. While this might save some money, it also lets ghost preparers escape liability for mistakes. That is the opposite of consumer protection.

At the very least, Rep. Panetta should withdraw his bill. But the best long-term reform would be to treat the root of the problem: a 70,000-page tax code that is too complicated for most people to navigate without professional help. The Tax Foundation estimated in 2016 that federal tax compliance alone costs 8.9 billion hours of paperwork and $409 billion. This does not include state and local tax compliance. Those figures have likely gone up in the last five years. There are better uses for those resources, especially during a tough economic recovery.

A simpler tax code would address most of the IRS’ complaints about tax avoidance and save taxpayers time, money, and hassle—and do so in a revenue-neutral way. Big accounting firms, their lobbyists, and their political allies’ losses would be more than offset by the gains to nearly everyone else.

The coalition letter is here. Back in 2010, Caleb O. Brown and I wrote in Investor’s Business Daily about a similar proposal that ultimately failed.

The 2021 Economics Nobels: The Importance of Empiricism, and its Limits

The economics Nobel is given to individuals, but it often really intends to recognize schools of thought or methodological approaches. That is the case with this year’s prize, given to three economists who emphasize natural experiments in their research. David Card of the University of California-Berkeley won half of the award, while MIT’s Joshua Angrist and Stanford’s Guido Imbens split the other half. In the eternal debate between theory and experiment, the Nobel prize committee decided to award a point to the experimenters’ side. Somewhere, Francis Bacon and René Descartes are smiling.

This does not settle the matter, however. Good analysts use both theory and experiment, not just one or the other. More subtly, good analysts are also aware of the limits of both, as well as their virtues, and seek to find a healthy balance. Theories are useless without data to test them against. And data are useless without theories through which to interpret them. At the same time, both are subject to all kinds of human foibles, from sloppy thinking to cognitive biases to spreadsheet typos.

Card has had a long and varied career, but he is best known for his controversial study that found that a minimum wage increase in New Jersey actually increased employment in local restaurants—the opposite of what theory predicts. It was later revised as claiming the increase had no effect on employment. That study was coauthored with Alan Krueger, who might have shared Card’s half of the award had he not passed away in 2019 (The Washington Post’s Catherine Rampell, who was Krueger’s research assistant as an undergraduate, wrote a moving tribute to Krueger after his death). More about their minimum wage study below.

Angrist and Imbens have found their own natural experiments. Angrist, in collaboration with Krueger, found a new argument that education does, in fact, affect a person’s income. People born in the first quarter of a year are no different from people with birthdays elsewhere on the calendar. But because they are slightly older than their classmates, they are eligible to drop out of school earlier in the school year—at least in places with compulsory education laws. That naturally isolates an important variable, and even provides a control to check the results. And they found that people with first-quarter birthdays do, in fact, have slightly lower lifetime income than people with fourth-quarter birthdays, who must wait longer to drop out of school if they choose. In this case, the difference of about 1/10th of a year of formal schooling is associated with an income difference of about 1 percent. Over the course of a lifetime, that can add up to thousands of dollars for many people.

Imbens’s best-known research is about how effective it is for doctors to encourage people to take flu shots. This is of obvious interest in the COVID-19 age. Imbens has also done extensive work on the theory of natural experiments, helping to bridge the gap between theory and experiment.

Many economists confine themselves to writing out thought experiments on blackboards. Card, Angrist, and Imbens ask: How well does this blackboard economics hold up in real life? Does the law of demand hold up as well as it does in textbooks? This isn’t a new idea. But economists, especially in the post-Samuelson era of abstract mathematics, need the occasional reminder.

Card and Krueger’s minimum wage study is one of the most famous attempts of the last 30 years to leave the blackboard behind. That is largely because it found that, contrary to two centuries of theory, a minimum wage increase in New Jersey did not reduce employment in restaurants, compared to next-door Pennsylvania, which did not increase the minimum wage. It remains the single most cited study by proponents of increasing minimum wages.

While its methodology is groundbreaking, this instance of it has serious problems. First, it relies on self-reported survey data. Restaurant owners do not want to appear stingy to other people, even on anonymous survey questions, so their answers are likely colored by social desirability bias. When the data going in are not reliable, the results are also often unreliable.

Second, although Pennsylvania and New Jersey are neighbors, they still have enough differences—and a border that thousands of workers cross every day—where the minimum wage difference is not exactly an isolated variable. The study does not account for changes in other industries such as retail, or for relevant changes in local tax rates, regulations, political leadership, or other factors.

Third, minimum wages affect more than just wages. Every worker also earns non-wage income. At a restaurant, this can mean complimentary meals or parking, employee discounts, tuition assistance, flexible hours, investments in better working conditions, or many other things. Many of these defy measurement, which is why many economists, including Card and Krueger, defy incorporating them into their research.

That matters, because owners will often go to great lengths to avoid layoffs and firings. If their wage costs go up, they will often offset them by cutting non-wage pay. In some cases, it means workers will get no pay increase, despite getting a larger formal paycheck. Firings are a last resort, which is on reason why so many studies find that minimum wages have smaller-than-expected employment effects. Card and Krueger are hardly the only analysts to forget about non-wage tradeoffs.

To be blunt about the Card and Krueger minimum wage paper, neither its data nor its conclusion hold water. But its methodological innovations, such as its differences-in-differences method, still make it worth studying. Their creativity in looking for natural experiments, if applied carefully, can enrich our understanding of any number of policy issues. The trick is to be careful and humble, rather than go for a headline-grabbing finding that makes a paper easier to publish and politically popular to cite.

None of this means that natural experiments do not deserve a Nobel prize, or that Card is not a worthy representative of that approach. Card’s creativity, and Angrist and Imbens’s, in finding natural experiments is impressive, and should influence other economists’ approaches.

The same is true of other empirically oriented prizes, such as former CEI Julian Simon Award winner Vernon Smith, one of the founders of experimental economics, or Elinor Ostrom, who did extensive field research on different ways people have found to solve the tragedy of the commons. Ronald Coase upended years of naysaying about private provision of public goods by going out into the world and asking a few questions. He found that many lighthouses—a classic public good—were, in fact, privately owned and managed. Future prizes will be given to other empirical innovators. This is good, and important.

It is also important to learn the limits of these approaches. People don’t always give honest answers in surveys. Not all results can be replicated independently, which is an important check built into the scientific method. If a researcher isn’t asking the right questions, what statisticians call the “dreaded third thing” might drive their results, rather than the variable in which they are interested—and they would never even know it.

With that in mind, congratulations to this year’s deserving winners. May they continue to find new ways to explore the real world, to be mindful of their human limitations, and to use sound price theory to interpret what they find.

For more on this year’s winners, see Alex Tabarrok over at Marginal Revolution, and David Henderson in today’s Wall Street Journal. For more on the non-wage effects of minimum wages, see my paper “Minimum Wages Have Tradeoffs.”

Jobs Added to U.S. Economy in September Show Signs of Hope and Hesitancy: CEI Analysis

This press statement was originally published on cei.org.

The U.S. economy added 194,000 jobs added in September, and unemployment dipped. CEI experts Ryan Young and Sean Higgins say this is encouraging because it shows that people are eager to reopen the economy further.

Statement from Senior Fellow Ryan Young:

“By this point, it’s pretty darn clear that the biggest factor in the economic recovery is COVID safety. People want to open back up, and when they feel it’s safe, they are. Unemployment is now back below 5 percent, even without any fresh stimulus spending from Congress. The spending bills Congress is currently debating are political wish lists that have little to do with the COVID recovery. Whether one supports them or not, they should be treated as such.

“The delta variant continues to provide a note of caution going forward, as do continuing vaccine hesitancy and the possibility of new COVID variants. But there is also good news. The FDA will likely approve the vaccine for children. People are getting booster shots when appropriate. And Merck has developed a COVID pill that could provide additional protection and free up hospital beds. The sooner the FDA cuts the red tape that is getting between sick people and life-saving treatments, the faster both the economy and public health will benefit. This is particularly the case for getting older Americans back in to the workforce. They are the people who often fill the jobs most in need of filling, such as school bus drivers.”

Statement from Research Fellow Sean Higgins:

“The Labor Department reported that the number of unemployed people fell by 710,000 in September but that only 194,000 new non-farm jobs were created. So while the unemployment rate fell to 4.8%, down four-tenths of a percent, that decline has more to do with people dropping out of the workforce than getting jobs.  

“The recovery continues to be slow and some people are giving up in frustration. The Labor Department reported that 1.6 million persons said they were prevented from looking for work in September due to the pandemic, a figure that remained essentially same as the prior month. The best way to let the economy recover remains to simply let business open and get back to hiring.”