Thursday, October 4, 2012

Ignorant or Stupid, Part 1

William King has an article in the Houston Chronicle titled "The Real Story Behind Rising Unemployment" which he pitches as a post-partisan, reasoned discussion of the impact of government regulation on employment in America. It is both wrong in its conclusions and misleading at best in the use of "facts". His primary conclusion is that since the unemployment rate has a rising trend since 1950, and he asserts that there has been massive regulation of the workplace constantly since the same time, these two trends cause each other. I'll quote:

So if unemployment has been getting worse for the last 60 years, including periods when both parties were in power, it would seem to raise the question whether there is a cause for it other than the ideological hogwash to which we are constantly subjected by both parties.
The answer is no mystery. Anyone who has been an employer for the last several decades, as I have been, can easily provide the answer. Our tax and regulatory policies have increasingly discouraged hiring more employees.
 I'm going to leave all of the easy criticisms to the side...well, I'll just list them at the bottom so we can get on with the really wrong stuff. 

Problem #1: The unemployment rate is a rate. If you're going to write about something, you should know what it is...if you don't know, then you're merely ignorant. If you do know what it is, but still get things wrong about it, well then, you're stupid. The unemployment rate is the number of unemployed people divided by the labor force. What's the labor force? Well, I'm glad you asked. It's a construct of the Bureau of Labor Statistics that measures the number of persons available for work. This changes every month along with the number of unemployed persons, and for that reason, virtually all serious economists and most assuredly the Federal Reserve ignore the unemployment rate and look at the employment to population ratio. This directly measures the number of jobs as a percentage of the total population, which is exactly the measure you'd like for a long run analysis of trend employment. (Actually, for this ratio you'd like the payroll employment number, to avoid problems with self-employment and agriculture effects, but both measures track each other very well.)

Problem #2: The employment to population ratio is skyrocketing up over the period Mr. King claims has been the height of regulatory burden for US employers. Let's take a look:

From 1960-2000, the percentage of employed population went from 55% to 65%, with most drops associated with...recessions (as you note, unemployment rises in a recession when demand drops, which is an assertion that actually is true). This is the giant period of regulation that Mr. King will be telling us about in subsequent weeks; it's associated with massive job creation even above and beyond the absorption of all those newly born workers. In fact, the most anemic rebound from a recessionary drop is associated with the relatively (financially at least) deregulated 2000's.

This is what happens when you start with conclusions and try to find facts. Play me out, Talking Heads:
Facts are simple and facts are straight 
Facts are lazy and facts are late 
Facts all come with points of view 
Facts don't do what I want them to 

P.S. I didn't forget about all the other problems.
  • Correlation/causation, blahblahblahblah
  • No evidence provided about the trend of business regulation and its covariation with the unemployment rate...
  • International comparisons to prove the point...wait, they mostly go the opposite way. Why is unemployment so low in China, for instance, but the US ranks 4th in the World Bank Doing Business Index and China ranks 91st?
  • And finally, for all you "mathematicians" out there, I'll note that regressing the unemployment rate on ANY measure of business regulatory burden is a horribly wrong thing to do, since the labor force is endogenously determined by the regulatory climate.

No comments:

Post a Comment