Category Archives: labor

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.”

Jobless Claims Are Down, but Tensions Remain in COVID Recovery

Jobless claims are at their lowest levels since the start of the pandemic; 310,000 people filed first-time claims last week, down roughly 95 percent from a peak of 6.1 million when the COVID shutdowns were at their worst.

The economic recovery is caught in a tug-of-war. On one side, COVID’s delta variant is slowing the recovery, as is the transformation of vaccines and masks into culture war issues. On the other side, economic fundamentals are in mostly good shape, aside from inflation. People are able to find work when they feel it is safe to, as shown in the all-time record 10.9 million job openings available right now. This back-and-forth tension will likely continue for as long as the delta variant or similarly harmful future COVID variants are widespread.

This week’s jobless claims were a swing to the good. The new school year has begun, and in most places, schools are back to in-person classes. This is freeing up a lot of parents who wanted to work, and felt safe doing so, but needed to stay home during last school year’s experiment in remote schooling.

Over the next several weeks, jobless claims may also decline as unemployment benefit extensions expire, prompting more people to reenter the workforce. Economists disagree over how large this effect will be, but no one seriously argues that unemployment benefit extensions have zero effect on people’s incentives to work or not. Whether this incentive effect will be strong enough to overcome delta variant fears remains to be seen.

As Congress follows up its trillion-dollar infrastructure plan with a $3.5 reconciliation bill and then a roughly $6 trillion budget, growth and employment could slow in the medium to long term as more resources get diverted to politicized spending projects, regulatory compliance, and paying off record levels of government debt.

Disappointing August Job Gains Tied to Covid Restrictions, Politics

This press release was originally posted at cei.org.

Competitive Enterprise Institute experts commented on today’s disappointing news about August job gains, urging policy makers to reject restrictions and politics and look for ways to lift barriers to economic recovery.

Sean Higgins, CEI research fellow:

“Friday’s Labor Department report https://www.bls.gov/news.release/pdf/empsit.pdf that the nation gained only 235,000 jobs in August was well below the gains of the previous months and proof that re-instituting Covid-related restrictions has created a serious drag on the recovery. Prior to August, the economy had been growing by more than a half million jobs a month. The department’s report is a reminder that there is a stark cost to restrictions and officials must be mindful of broader consequences. The economy has been resilient so far, but that was partly because the end appeared to be in sight. New uncertainty is undermining that.

“The number of people who reported being unable to work for pandemic-related reasons was 5.6 million, an abrupt rise of 400,000 in a single month. The leisure and hospitality industry, usually the first to feel the effects of covid-related policies reported no gains in August due to a loss of 42,000 jobs in restaurants and bars wiping out all other gains. That’s a serious blow to people who have already endured a year and a half of difficult times.

Ryan Young, CEI senior fellow:

“Covid’s delta variant is showing up in economic statistics now, not just health statistics. Payrolls are still growing, on net, and will likely to continue to grow for the rest of the year. But that growth will be slower than it otherwise would be, in part because some people simply insist on turning vaccines and masks into political issues. Today’s tendency to turn everything into a culture war bears a lot of the blame for low vaccination rates. This in turn makes people more reluctant to travel, dine out, and attend events, which is where a lot of vulnerable jobs are being lost.

“There isn’t much policymakers can do about cultural attitudes, since mandates tend to backfire; but there is plenty they can do to roll back regulatory, licensing, and financial regulations that are blocking businesses from opening, staying afloat, or even expanding. Policymakers can also restore confidence by walking back unnecessary multi-trillion dollar spending projects that have more to do with politics than economic recovery.”

Jobless Claims Drop to Pre-Pandemic Level but Congress Spending Binge Threatens Recovery

This news release was originally posted at cei.org.

The federal government today reported a drop in seasonally adjusted initial unemployment claims to the lowest level for this average since March 2020. CEI Senior Fellow Ryan Young expressed confidence that two pandemic recovery milestones will bring greater gains but also pointed to a big problem on the horizon: a spending binge by Congress.

Statement by Ryan Young, CEI Senior Fellow:

“Jobs are continuing to come back, and the near future also looks good, thanks to two milestones. One, the number of vaccinated Americans crossed 200 million, bringing the country closer to herd immunity. Two, the new school year is beginning, which will allow more parents to resume working if they choose; there are still plenty of openings. COVID’s delta variant clouds matters, but the more people who get booster shots, the less harm it should cause to people’s health and pocketbooks.

“The continued strength of the recovery continues to show how unnecessary Congress’ planned spending binge is. If Congress presses forward on the infrastructure bill and its other trillion-dollar plans, it will be less about doing good, and more about handing out political favors and not wanting to admit that their pet economic theories about stimulus are wrong.”

July Jobs Analysis: More Spending, Restrictions from Congress Won’t HelpThe

This press release was originally posted at cei.org.

The U.S. economy added 943,000 jobs in the month of July, with a decline in unemployment to 5.4 percent according to government numbers released today. Competitive Enterprise Institute experts said lawmakers can aid further recovery not by spending or imposing mandates and restrictions but in finding ways to remove barriers to work.

CEI Research Fellow Sean Higgins:

“The Labor Department reported Friday that 5.2 million persons reported not working in July because their employer closed or lost business due to the pandemic, down from 6.2 million in June. It’s encouraging that the dramatic one-month decline in the number of people seeking unemployment benefits – one million fewer people – exceeds the 943,000 in new jobs the government reported for the month of June. The evidence is starkly clear that for the economy to recover we simply need to let people get back to work. Additional spending isn’t necessary and new restrictions to counter the Delta variant will only imperil the economy’s recent gains.

CEI Senior Fellow Ryan Young:

“Clearly, people do not need another spending binge from Congress to find work. If anything, Congress’ spending will cause active harm by using up investment capital that instead could have gone to startups that need it to grow, hire, and adapt to COVID-era conditions.

“The recovery’s biggest obstacle, besides Congress, remains vaccine hesitancy. While the vaccination rate is now over 70 percent, that is clearly not enough to keep the delta variant from spreading. Mandated or not, masks and various degrees of lockdown will simply be a part of life until people get vaccinated. That should be the top recovery priority.

“While there is only so much Congress can or should do to address vaccine hesitancy, there is plenty else they can do. Lawmakers should loosen occupational licenses, lift trade barriers, make project permitting requirements swift and reasonable, direct agencies to scrub outdated regulations, and keep inflation in check. These measures would help far more people than would adding to the national debt.”

Government Can Further Jobs Gain By Continuing to Ease Restriction and Not Spending

This news release was originally posted at cei.org.

The economy added 850,000 jobs in June, according to newly released numbers by the Labor Department. That exceeds the anticipated number of 700,00. And the biggest gains were in the leisure and hospitality sector. What can government do to help with even bigger gains as the economy continues pandemic recovery? CEI experts offer advice.

Ryan Young, CEI Senior Fellow:

“June’s jobs report is fresh evidence that the COVID economic recovery does not need more government spending. It needs more vaccinations and fewer regulatory obstacles. The boom in leisure and hospitality jobs shows that vaccination rates are now high enough for many people to feel safe going to events and summer vacations that last year would have been extremely dangerous. Deficit spending is already at a record high, and there is no need to add to it further. Policymakers should instead lighten permit and paperwork burdens, lower trade barriers, and allow easier access to capital so new businesses can start up, and existing businesses can adapt to the new conditions.”

Sean Higgins, CEI Research Fellow:

“June’s gain of 850,000 jobs can largely be attributed to the continued rollback of state and federal restrictions related to the Covid-19 epidemic. The Labor Department found that 6.2 million people reported in June that they were unable to work because their employer was closed or lost business due to the pandemic, down from 7.9 million reporting the same problem in May. The biggest gains were seen in the leisure and hospitality industry (343,000 jobs) and public and private education (269,000 jobs) both reflecting trends of people getting out of their homes and back out in public. The data shows that best remedy for the economy is to simply let it heal itself by having government get out of the way.”