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Fun With Robert Samuelson: The Good News Is Bad News

4:50 am in Uncategorized by Dean Baker

NewsIt’s always entertaining to read Robert Samuelson’s columns on Monday mornings. They are so deliciously orthogonal to reality. Today’s column, asking whether America is in decline, is another gem.

He starts with a set of “good news” items from a paper issued by Goldman Sachs:

For starters, the U.S. economy is still the world’s largest by a long shot. Gross domestic product (GDP) is almost $16 trillion, ‘nearly double the second largest (China), 2.5 times the third largest (Japan).’ Per capita GDP is about $50,000; although 10 other countries have higher figures, most of the countries are small — say, Luxembourg.

That sounds good, except that having double the GDP of China depends on looking at exchange rate measures of GDP. This figure is inflated by the over-valued dollar and under-valued yuan. Using the purchasing power parity measure of GDP, the gap is much smaller, with the IMF projecting it will go the other way by 2017. According to some estimates China’s GDP is already larger than ours, so it’s probably best to keep this celebration short.

It is true that the U.S. has a higher per capita income than Germany, France, and most other wealthy countries. But by far the main reason for this gap is that we work about 25 percent more on average than workers in Western Europe who all get 4-6 weeks a year vacation, paid parental leave, and paid sick days. This is far more an issue of a different trade-off between work and leisure than a question of people in the United States being richer.

Next we get the good news about our massive energy resources:

In turn, the oil and gas boom bolsters employment. A study by IHS , a consulting firm, estimates that it has already created 1.7 million direct and indirect jobs. By 2020, there should be 1.3 million more, reckons IHS.

Ignoring the issue of pollution from drilling out this windfall, it is important to put these jobs numbers in perspective. These are gross jobs, not net jobs. In other words, the vast majority of the 3 million jobs that IHS is promising us in oil and gas by 2020 are not additional jobs to those that would otherwise exist in the absence of these resources. These are jobs that displace jobs in education, medical research, health care, and other sectors. Samuelson may be excited that more people will be employed digging gas wells in 2020 and fewer educating the young, but the economic and social benefits of this reallocation of workers are not obvious.

Then we have the fact that we will be younger than other countries:

American workers will remain younger and more energetic than their rapidly aging rivals. By 2050, workers’ median age in China and Japan will be about 50, a decade higher than in America.

Yeah, you probably jumped ahead on this one. A main reason that we will be younger is that we have shorter life expectancies. The good news just keeps coming.

Then we have the U.S. as the prime destination for highly educated emigrants:

Moreover, the United States attracts motivated immigrants, including ‘highly educated talent.’ A Gallup survey of 151 countries found the United States was the top choice for those wanting to move, at 23 percent. At 7 percent, the United Kingdom was second.

Let’s see, the U.S. population is roughly five times as large as the U.K.’s population. That means if the poll reflects actual immigration patterns, then the U.K. will draw 50 percent more highly educated workers relative to the size of its population as the United States.

If Samuelson’s good news is not quite as good as he would like us to believe, the bad news is also not as bad:

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The Recession for College Grads

9:26 am in Uncategorized by Dean Baker

The WAPO has a nicely graphed blogpost telling us that there was no recession for college grads. It shows that employment for college grads has risen at a strong pace since the start of the recovery and is well above its pre-recession level. The problem is that we need a denominator in this story. (This seems to be a recurring problem at the WAPO, like when they tell us about the multi-trillion dollar shortfall projected for Social Security without pointing out that it is equal to around 0.6 percent of future GDP.) Anyhow, fans of fractions can see that there was in fact a serious recession for college grads which still lingers today. As the graph shows, the unemployment rate for college grads rose from less than 2.0 percent before the downturn to a peak of more than 5.0 percent in 2009. Currently it is hovering near 4.0 percent, more than twice its pre-recession level.

Unemployment Rate for People With at Least a College Degree

Source: Bureau of Labor Statistics

So how do we get a doubling of unemployment at a time when college grads are scooping up millions of new jobs? Yes folks, this is where our old friend the denominator comes in. It seems that there has been an even more rapid rise in the number of college grads in the labor force over the last five years as shown below:

People with a College Degree or Higher in the Labor Force

Source: Bureau of Labor Statistics.

So even though college grads were getting more jobs, they were not getting them at a fast enough pace to keep up with the growth in the number of college grads in the labor force. Just to be clear, college grads were still doing well in the scheme of things. Here’s the picture for those at the other end of the educational spectrum, people without high school degrees.

Unemployment Rate for People with Less than a High School Degree

 

Source: Bureau of Labor Statistics.

As can be seen unemployment also doubled for people with less than a high school degree, but the starting point was much higher at close to 7.0 percent. In fact, this rise in unemployment understates the true impact of the downturn, since many people without high school degrees simply left the labor force as a result of their bleak job prospects. (This undoubtedly happened with some college grads too, but the effect was likely much smaller.)

The moral of this story is that the recession has hit everyone. This is important because some folks could be led to believe from the employment story that the problem is that we just need more people to get college degrees and then they will be able to find good paying jobs. However, when we bring in our old friend the denominator we can see that this is not true. The problem is simply a lack of demand in the economy. Education helps in a downturn as it does during normal times, but even the most highly educated workers are getting whacked by this recession.

Dean Baker is co-director of the Center for Economy and Policy Research. He also writes a regular blog, Beat the Press, where this post original appeared