1. Inspecting the structure of labor markets
Presentation prepared for the Georgia Partnership for Excellence in Education
Atlanta, GA
November 17, 2016

2. Payroll growth is slowing modestly, but not to levels inconsistent with further tightening of labor markets.
Average change in nonfarm payrolls:
1 – month change
161,000
3 - month change
176,000
year-to-date change
196,000

3. U-6 – which captures “involuntarily” part-time workers, remains elevated relative to pre-crisis levels. U6
4.6 ppt. U3
3.7 ppt.

4. Can we at least convert more part-timers to full-timers?

5. Despite improving labor market conditions, the probability of a PTER worker transitioning to FT is declining.
Source: Peter Diamond, Discussion of “Where have all the workers gone?”, 60th Economic Conference, Federal Reserve Bank of Boston

6. Unemployment rate measures improved some in October, but have been generally flat over the year…

7. Labor Force Participation Rate
… while, contrary to expectations, labor force participation has picked up over the past year– and therein lies a story.
Labor Force Participation Rate
Percent, Seasonally Adjusted
Unemployment rate, 10/15: 5.0%
Unemployment rate, 10/16: 4.9%
Source: Bureau of Labor Statistics
through October 2016

8. With a strong enough pull, can draw more people into the labor force?

9. Changes in labor force participation are a two-way street.
OUT
The difference in these two gross flows will determine the net change in the labor force participation rate.

10. Probability of nonparticipants entering the labor force (RHS)
LFP has risen over the past year because fewer people are leaving (not because more are entering).
Percentage points, 3-month moving average
Percentage points, 3-month moving average
Probability of labor force participants dropping out of the labor force (LHS)
Probability of nonparticipants entering the labor force (RHS)
Source: Bureau of Labor Statistics through Sep. 2016

11. What’s the deal with prime-age males?

12. The decline in prime-age male participation is nothing new.

13. Percent self-reporting as in Fair or Poor Health*
Inactive prime-age males are “structurally” different than labor market participants.
Percent self-reporting as in Fair or Poor Health*
Employed
11.9
Unemployed
16.2
Not in Labor Force
42.7
* Based on pooled survey results from 2010, 2012, and 2013
Source: Alan Krueger, “Where have all the workers gone?”, presentation, 60th Economic Conference, Federal Reserve Bank of Boston

14. Are we really providing the right incentives?

15. Alan Auerbach, Laurence Kotlikoff, and Darryl Koehler:
Calculate net remaining lifetime tax rates taking into account “all major federal and state tax and transfer programs, including the federal personal income tax, the FICA payroll tax, state income taxes, state sales taxes, the federal corporate income tax, the federal estate tax, TANF welfare benefits, Food Stamps, Supplemental Security Income , Social Security retirement and auxiliary… benefits, Social Security disability benefits, Medicaid benefits, Medicare benefits, and Medicare Part B premiums.”
Source: “U.S. Inequality, Fiscal Progressivity, and Work Disincentives,” NBER Working Paper 22032, , Feb. 2016:

16. From the vantage point of average tax rates, the U. S
From the vantage point of average tax rates, the U.S. tax and transfer system looks quite progressive…
Dispersion in Current-Year Net Marginal Tax Rates, Ages 40-49
Average Current Year Net Tax Rate
Lowest Quintile
-26.1%
Second Quintile
17.0%
Third Quintile
24.2%
Fourth Quintile
27.9%
Highest Quintile
37.4%
Source: “U.S. Inequality, Fiscal Progressivity, and Work Disincentives,” NBER Working Paper 22032, , Feb. 2016:

17. … and even more so if we focus on lifetime tax burdens.
Dispersion in Current-Year Net Marginal Tax Rates, Ages 40-49
Average Current Year Net Tax Rate
Average Lifetime Net Tax Rate
Lowest Quintile
-26.1%
-40.6%
Second Quintile
17.0%
4.2%
Third Quintile
24.2%
11.9%
Fourth Quintile
27.9%
19.2%
Highest Quintile
37.4%
32.2%
Source: “U.S. Inequality, Fiscal Progressivity, and Work Disincentives,” NBER Working Paper 22032, , Feb. 2016:

18. Current-period net marginal tax rates for year olds, broadly defined, show little progressivity.
Dispersion in Current-Year Net Marginal Tax Rates, Ages 40-49
Median Marginal Current Year Net Tax Rate
Minimum Marginal Current Year Net Tax Rate
Maximum
Marginal Current Year Net Tax Rate
Lowest Quintile
33.3%
Second Quintile
31.4%
Third Quintile
32.3%
Fourth Quintile
40.0%
Highest Quintile
38.2%
Source: “U.S. Inequality, Fiscal Progressivity, and Work Disincentives,” NBER Working Paper 22032, , Feb. 2016:

19. Net tax rates at the individual level show enormous dispersion, and are prohibitive at the high end.
Dispersion in Current-Year Net Marginal Tax Rates, Ages 40-49
Median Marginal Current Year Net Tax Rate
Minimum Marginal Current Year Net Tax Rate
Maximum
Marginal Current Year Net Tax Rate
Lowest Quintile
33.3%
-22.6%
934.6%
Second Quintile
31.4%
2.8%
506.9%
Third Quintile
32.3%
Fourth Quintile
40.0%
Highest Quintile
38.2%
Source: “U.S. Inequality, Fiscal Progressivity, and Work Disincentives,” NBER Working Paper 22032, , Feb. 2016:

20. Dispersion in net tax rates is most dramatic for the least wealthy.
Dispersion in Current-Year Net Marginal Tax Rates, Ages 40-49
Median Marginal Current Year Net Tax Rate
Minimum Marginal Current Year Net Tax Rate
Maximum
Marginal Current Year Net Tax Rate
Lowest Quintile
33.3%
-22.6%
934.6%
Second Quintile
31.4%
2.8%
506.9%
Third Quintile
32.3%
-37.6%
46.2%
Fourth Quintile
40.0%
16.6%
55.1%
Highest Quintile
38.2%
3.0%
69.0%
Source: “U.S. Inequality, Fiscal Progressivity, and Work Disincentives,” NBER Working Paper 22032, , Feb. 2016:

21. Can a hot enough economy propel structural change?

22. A well-known fact: Minority unemployment rates are higher than white unemployment rates.
Jan 2000-Aug 2016, 3mma
Source: Bureau of Labor Statistics.

23. Do “high pressure” economies improve broader labor market performance?
“High Pressure” Period
Gap between African-American and White unemployment rates
1978Q2-1979Q4
-0.8
1987Q4-1990Q3
-0.3
1997Q Q3
-1.8
2005Q4-2007Q4
-0.9
Note: “High pressure” periods are defined as periods when the unemployment rate falls below the Congressional Budget Office’s estimate of the “natural” rate of unemployment.
Sources: Bureau of Labor Statistics; Congressional Budget Office (CBO); BEA; Federal Reserve Bank of Atlanta

24. The U.S. has experienced 6 of these periods since they tended (eventually) to end in recession.
1978:Q2
1971:Q4
1987:Q3
1964:Q3
1997:Q1
2005:Q4
Sources: Bureau of Labor Statistics; Congressional Budget Office (CBO); BEA; Federal Reserve Board

25. African-Americans on average clearly fair worse that White-Americans during recessions.
Source: Bureau of Labor Statistics
through September 2016

26. Does education play a role?

27. Education helps to close unemployment gaps, but not completely
Smallest African-American to White unemployment gap is for those with a bachelor’s degree, but still stands at 50% higher rate.
Education shrinks disparities in labor market outcomes, but other factors involved as well

28. Questions
Does the current education system produce some of these disparities?
What can be expected of educational institutions – primary, secondary, and postsecondary – in terms of eliminating gaps in opportunity, prosperity, and (ultimately) growth?
Where do other organizations and institutions have to get involved?

29. Inspecting the structure of labor markets