The Meaning of a Fantastic Job Report – 04/11/2023 – Paul Krugman

It was said that Americans just don’t want to work. Socialism had made them lazy. They now preferred playing video games. They no longer had the skills required by a 21st century economy. High unemployment is “structural” and cannot be resolved with monetary and fiscal stimulus.

These stories all received wide circulation during the long fall in employment that followed the 2008 financial crisis, and again in the aftermath of the recession caused by the pandemic. They were inventions pushed by billionaires, captains of industry and leading economists.

And none of them were true.

It may be difficult for normal human beings – by which I apologize, I mean non-economists – to appreciate the dazzling, and historical nature, of last Friday’s employment report. But the speed and depth of America’s recovery from the shock of the pandemic has been incredible.

After the 2008 financial crisis, it took 12 years for employment rates to return to pre-crisis levels. But just three years after the Covid hit, employment is fully back, for nearly all ages and demographics.

Do you remember all the noise about the abandonment of the US workforce? At this point, the percentage of employed adults is at the same level or at a similar or higher level than in the early months of 2020, for all age groups, except among people aged 70 and over. (And they should probably get out of the way anyway. Hey, wait, I’m 70!) The world unemployment rate is just 3.5%; we haven’t had that spirit around here since 1969. Black unemployment is at a record low. There is good news everywhere you look.

So who knows: Provide enough job opportunities, and lazy Americans who play video games will choose to stay in their jobs and, apparently, demonstrate enough skills that employers will want to keep them.

Furthermore, the reality is that there are great benefits to full employment beyond the fact that people have jobs. Full employment also proves to be a powerful force for equality, in multiple dimensions. The gap between black and white unemployment is now one-fifth what it was when Ronald Reagan proclaimed “morning in America.” A tight labor market has led to big gains for low-wage workers, drastically reducing the overall wage gap.

The big question now is whether the good jobs news is somehow a mirage, based on an unsustainably hot job market that will have to cool down dramatically to contain inflation.

The Fed (Federal Reserve, the US BC) seems to think so. The most recent projections by the committee that defines the monetary policy set an increase in unemployment to 4.6% until December. Last June, Larry Summers predicted that we would need two years of unemployment at 7.5% — more than double the current level — to control inflation.

But what does the current data say? To some extent, the answer is: whatever anyone wants to hear.

For one thing, median wages are now growing at an annual rate of less than 4%, not much higher than growth on the eve of the pandemic. This is not what you would expect in an extremely overheated job market. Even if you believe the number is being held back by a surge in hiring in low-paying occupations — Goldman Sachs estimates that “composition-adjusted” wages are rising by 4.2% — the wage data is pretty benign.

On the other hand, unfilled jobs remain unusually high, which some economists believe points to an overheated market (although there are questions about both the reliability and relevance of the job vacancy data). And several indicators trying to gauge underlying inflation — a tricky business in an economy that is still trying to correct pandemic-related distortions — mostly point to inflation of around 4% or slightly higher, well above target. from the Fed.

But perhaps the important point is that almost every indicator of inflationary pressure that I am aware of has improved substantially over the last 12 months, without any increase in the unemployment rate. And there is no hint of the much-feared self-reinforcing inflationary spiral, in which rising expectations of future inflation feed off current inflation. In fact, most indicators of inflationary expectations have fallen over the past year.

So there’s good reason to believe that we can sustain the incredibly good job market that we have right now, while keeping inflation in check. It will be a real tragedy if the exaggerated fear of inflation causes the Fed to push interest rates too high for too long, leading to a gratuitous recession that throws away many of the gains we have made.

Today’s column isn’t directly about politics, really, although people who insist that we won’t be able to achieve full employment because American workers don’t have the required talent and drive tend to align themselves with the political right. But it’s worth noting that Republicans continue to insist that President Biden’s policies have been an economic disaster, and that even mainstream media outlets have tended to emphasize inflation — which has been a nasty shock, though it may be settling down — instead of job advances.

So it seems worth pointing out that, right now, Biden presides over the best job market America has seen in a generation — specifically, since the Clinton boom of the last few years. That, as Biden himself could (almost) say, is a big deal.

Translated by Paulo Migliacci

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