Monetary Policy Interventions in the Covid-era: Implications and Consequences – the Labor Market

Monetary Policy Interventions in the Covid-era: Implications and Consequences – the Labor Market Global Interdependence Center Professor David Blanchflower November 19th 2020 Glasgow, Dartmouth, NBER and Bloomberg Blanchflower@dartmouth.edu & twitter @D_Blanchflower

1

A few relevant papers •

With David Bell (2020), 'Underemployment in Europe and the United States’, in ILR Review first published online 22nd November 2019.

•

Not Working: Where Have all the Good Jobs Gone?, Princeton University Press (2019). New paperback edition coming March 2021.

• With David Bell (2019), ‘The well-being of the overemployed and the underemployed and the rise in depression in the UK’, Journal of Economic Behavior and Organization, 161 May, pp. 180-196.

• With David Bell (2018), 'The lack of wage growth and the falling NAIRU', National Institute Economic Review, 245, August, pp. R1-R16, 2018.

•

With Andrew Oswald (2020), ‘Trends in extreme distress in the United States, 1993–2019,’ American Journal of Public Health, August

• With Andrew Oswald (2019), ‘Unhappiness and pain in Modern America: a review essay, and further evidence, on Carol Graham’s Happiness for All?‘, Journal of Economic Literature,, 57(2), pp. 385-402.

• With Andrew Oswald (1994), The Wage Curve, MIT Press

Main Points • The Fed made a major mistake from 2015-2018 by raising rates. This seemed mostly based on fears that the US was approaching full employment. There was no price or wage pressure.

• This was a major error as I pointed out continuously over those years. The labor market was nowhere close to full employment, which is why there was no wage pressure.

• I worked for years on the relationship between wages and unemployment. Since around 2000 unemployment is no longer an appropriate indicator of labor market slack, what should be used is underemployment (U7).

• In the post Covid-era unemployment and underemployment have increased but so has wage growth as the bottom of the wage distribution has dropped out. Phillips/wage curves are dead.

• The evidence is that pre-Covid Americans were hurting. Pain was on the increase and is higher in the US than in any other advanced country. Deaths of despair are a major concern especially with less educated prime age whites. One in eight say every day is a bad mental health day.

• Monetary policy is going to have to get the labor market right and think creatively and worry about distributional aspects more/mostly.

Unemployment (U3) and Underemployment rates (U7) , USA

9 15

14

8

U7 (RHS) U3 (LHS) 13

12

7 11

6 10

9

5 8

7

4 6

3 5

4

2 3

Oct-20 Apr-20 Oct-19 Apr-19 Oct-18 Apr-18 Oct-17 Apr-17 Oct-16 Apr-16 Oct-15 Apr-15 Oct-14 Apr-14 Oct-13 Apr-13 Oct-12 Apr-12 Oct-11 Apr-11 Oct-10 Apr-10 Oct-09 Apr-09 Oct-08 Apr-08 Oct-07 Apr-07 Oct-06 Apr-06 Oct-05 Apr-05 Oct-04 Apr-04 Oct-03 Apr-03 Oct-02 Apr-02 Oct-01 Apr-01 Oct-00

Jan-90 Jul-90 Jan-91 Jul-91 Jan-92 Jul-92 Jan-93 Jul-93 Jan-94 Jul-94 Jan-95 Jul-95 Jan-96 Jul-96 Jan-97 Jul-97 Jan-98 Jul-98 Jan-99 Jul-99 Jan-00 Jul-00 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 Jan-19 Jul-19 Jan-20

US Wage Growth Production Non-Supervisory and U7 through February 2020

7

6

Wage growth U7 (RHS)

5

4

3

2

1

0

US unemployment rates corrected for misspecification errors % March April May June July August September October

Unadjusted 4.6 14.5 13.0 11.2 10.4 8.4 7.6 6.9

Adjusted 5.9 19.7 16.5 13.0 11.9 9.7 8.5 7.2

US Annual Weekly Wage Growth Production and Non-Supervisory Workers (%)

January February March April May June July August September October

Nominal 2.7 3.6 2.6 7.0 8.2 6.6 6.2 6.4 6.1 6.3

Real 0.2 1.3 1.2 6.9 8.2 6.0 5.2 4.9 4.4 5.0

-3

-5

-6

-8 Jan-65

-1 Jan-98

9

6

4

2

1

0

310

300

-2

290

-4

280

270

-7

260

Earnings $

Jan-20

Feb-19

Mar-18

Apr-17

May-16

Jun-15

Jul-14

Aug-13

Sep-12

Oct-11

Nov-10

Dec-09

Jan-09

Feb-08

Mar-07

Apr-06

May-05

Jun-04

Jul-03

Aug-02

Sep-01

Oct-00

Nov-99

Dec-98

Annual real wage growth (LHS)

Feb-97

Mar-96

Apr-95

May-94

Jun-93

Jul-92

Aug-91

Sep-90

Oct-89

Nov-88

Dec-87

Jan-87

Feb-86

Mar-85

7

Apr-84

May-83

Jun-82

Jul-81

Aug-80

Sep-79

Oct-78

Nov-77

Dec-76

Jan-76

Feb-75

Mar-74

Apr-73

May-72

Jun-71

Jul-70

Aug-69

Sep-68

Oct-67

Nov-66

Dec-65

Growth

Real Weekly Earnings $ and Annual Growth Rates - Production and Non-Supervisory Workers 360

8

350

Real Wage $ (RHS) 340

5

330

3

320

The Bottom of the Wage Distribution Has Dropped Out in 2020 Usual median weekly earnings growth, FT workers 2020 % All Whites Blacks Asians Hispanics

2020Q1 5.7 4.8 5.2 5.5 3.6

2020Q2 10.4 9.0 11.2 16.0 12.9

2020Q3 8.2 6.9 11.8 11.6 9.3

Log Weekly Wage Regressions using Alternative Measures U3-U7, 2003-2019 (N=850) .

(1) (2) (3) (4) (5) Log Wt-1 .4529 (15.99) .4290 (15.28) .4436 (15.78) .4285 (15.25) .4293 (15.32) Log U3 -.0292 (4.57) .0017 (0.21) Log U7t -.0421 (5.65) -.0451 (3.93) -.0411 (7.32) Log U6t -.0433 (6.13) .0058 (0.40) All equations include year and state dummies and personal controls.

Source CPS MORG files, BLS and Bell and Blanchflower (2020) • U-6=Total unemployed, plus all persons marginally attached to the labor force, plus total employed part time for economic reasons (PTFER), as a percent of the civilian labor force plus all persons marginally attached to the labor force • U7=PTFER/Employed

Extreme distress, ages 35-54 by college or non-college, 1993-2019 12.00

11.00

Whites no college

Non-whites no college

Whites some college

Non-whites some college

10.00

9.00

8.00

7.00

6.00

5.00

4.00

3.00 2019

2018

2017

2016

2015

2014

2013

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

1999

1998

1997

1996

1995

1994

1993