Justin Bloesch
@JustinBloesch
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Assistant Professor at @cornellilr & @CornellEcon . Macro, labor, inequality. "Bloesch" rhymes with "mesh".
Ithaca, NY
Joined January 2017
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A thread about why I think the soft landing has been achievable:
Wages are downwardly sticky in nominal terms, but not in real terms.
Also wage *growth* is not sticky downwards.
This matters for both a low-cost cooling of the labor market and lack of a wage-price spiral.
But anyway, the soft landing story was that went up with shocking speed could also come down with shocking speed. 8/
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I'm excited to share that I'll be joining
@CornellEcon
and
@cornellilr
as an assistant professor in summer '23, after a postdoc at
@Columbia_Biz
and
@rooseveltinst
starting this summer.
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Defended today! Contrary to popular belief, my committee does not entirely consist of
@bphuang12
. But she did come to celebrate with my afterwords.
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New blog post at
@rooseveltinst
:
In 2019, the unemployment rate was 3.5%, and inflation was low and stable.
Now at the end of 2022, there's little reason to think that a rate of 3.5% is intrinsically more inflationary than it was in 2019. A thread:
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New report at
@rooseveltinst
:
As the Fed tries to steer the economy back to normal, what inflation rate should the Fed aim for? Should it always be 2% in the future?
I argue that the Fed should adopt a target range for inflation of 2-3.5%. A thread:
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Leisure and hospitality is kind of a residual sector of the labor market: it soaks up workers if demand is low, but workers leave it if they get better jobs.
This makes wage growth in L&H a really good indicator of labor market tightness. Tightness is falling.
Leisure wage growth keeps decelerating. The short-term annualized data is looking more like 3-4%, fully normalized:
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This slowdown in wage growth happened all while the unemployment actually fell!
Over the past 3-6 months wages are in the high 3% range. Over the past 3 months it is at 2018-2019 levels.
How does that happen if u < u*? More generally, If you are anchored on early 2022 data that's more like 5-6% wage growth, you need to update. High 3s can be sustainable./2
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The honey badger labor market, and why it just doesn't care: (h/t
@jstalnaker1
)
1. Fewer people work in interest sensitive sectors (housing, manufacturing).
2. Those sectors were constrained anyway: still a backlog cars and homes.
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Never doubt the ability for strong labor demand to pull people into the labor force.
You can see that in overall Labor Force Participation, which increased again and is so notably above CBO's prepandemic and pre-American Rescue Plan's projections. /3
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Guess she was on
#TeamTransitory
. Love you, dear.
TFW you vowed 2 years ago to listen to
@JustinBloesch
talk about inflation, no matter how boring it got, and it got boring.
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From back in October, the soft landing recipe:
Unemployment rate stays at 3.5%. ✅
Labor market churn and wage growth moderate. ✅
Supply issues resolve with time. ✅
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Today's big jobs numbers suggests that workers continue to come back into the labor force. It seems this is being reported as bad for the Fed.
But people were worried that lack of labor supply was bad for inflation. You can't have it both ways.
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A quick thread on why student workers as the Harvard Graduate Student Union (HGSU-UAW) are planning to go on strike on December 3rd.
(Article with fellow bargaining committee members
@CherrieBucknor
and Hector Medina.)
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It needs to be abundantly clear that if the Fed really does try to get the unemployment rate above 4%, this is what they're throwing away.
The black prime-age employment rate made yet another cyclical high.
Now at 78.1%, 0.6% above the pre-pandemic peak, and now just 0.6% from the all-time high in 1999.
And the differential to white employment outcomes hasn't been this low in ~45yrs.
Truly remarkable
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As they should. Estimates of a 6% natural unemployment rate in the 2010’s was badly wrong and limited what policymakers thought was possible.
This might be the most important development in the labor market: Estimates of the "natural rate" of unemployment have fallen from six percent a decade ago to four percent.
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Really nice piece. I love this line:
"Younger, less educated, and lower-wage workers are more dependent on tight labor markets to find work and get raises, while the incomes of workers with experience and credentials rise more steadily regardless of macroeconomic conditions."
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New post at
@rooseveltinst
: Still on the path to a soft landing.
TLDR: The labor market is a only a bit tighter than it was in 2018-2019, and that's good.
We address 2 issues: time trends in JOLTS vacancies, and composition in average hourly earnings.
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A long-ish thread making old points with new data.
1. The job openings series continues to overstate labor market tightness.
2. Wage growth has been gradually declining, despite bumps in various series.
Upshot: the Fed doesn't need further labor market loosening.
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Really quite remarkable how well the quits rate has predicted wage growth over this cycle.
Also taking 6 month moving averages, the quits rate is exactly back to where you'd expect, given the unemployment rate.
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We did it. After three years (personally) of work, we are now really, really official.
AAAAAAAHHHHHHHHHHH
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Behold the frankly remarkable relationship between nominal wage growth (employment cost index, private industry wages and salaries) and quits (also private industries) since 1991.
Note that the latest two private quits readings were 2.5 and 2.4.
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Hard to look at this and say this is a labor market that is 'out of balance' or 'too hot'.
This is a labor market that is gradually returning to normal, but a much better version of "normal" than we were used to for the last 25 years.
The descent of posted wage growth is picking up. 💰 📉
Posted wages grew 4.7% year-over-year as of July, according to the latest data from the
@indeed
Wage Tracker. That’s down from 5.1% in June and 6.2% at the beginning of the year.
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Shame on the
@Columbia
administration. This level of police response to a student protest is an abomination.
Please, everyone, remember this: the presence of police on Columbia's campus comes because of the request of the administration, in defiance of faculty governance. This is the authoritarian university in action.
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I don’t think this is a good model for how wages are set.
Most workers don’t have the power to bargain based on cost of living, especially not lower-wage workers who tend be most renters.
Relatedly, one of the reasons for why I advocated addressing rent inflation early, was that wage demands are more affected by existing leases resetting at 10-20% higher than by the marginal impact on new leases. This process is underway right now. 8/8
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I think this really affirms that Sanders pretty uniquely appeals to a disaffected, low-income, and young group of people who often don’t vote. People who are concerned about Sanders’ electability I think underestimate the potential here.
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The Employment cost index (ECI) comes out tomorrow morning! I think the ECI will be important for determining if and how the Fed can get inflation to fall without increasing unemployment.
Main reason: ECI appears to move quite tightly with inflation in services.
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Labor force participation responds gradually to demand.
People got swept up in a narrative of stalled participation based on noisy data.
This month's job numbers are a bit fluky, but continued job gains of 200k+ are possible and not a sign of overheating.
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There's suddenly a lot of soft landing optimism. 3 reasons why:
1. Non-linear Phillips curve: cooling demand lowers prices, not quantities.
2. Employment is less interest sensitive.
3. Weak price-to-wage passthrough -> small risk of wage-price spiral from supply shocks.
🧵
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Paper thread time! "Do Cost-of-Living Shocks Pass Through to Wages?" with
@seung_econ
and
@jacobpweber
.
Main takeaway: if firms set wages and workers search on the job, pass-through of cost of living to wages is negligible.
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The unemployment rate was 3.5% in 2019 when inflation was low. It's 3.5% now. To argue that's inflationary today you need to argue that NAIRU is up for some structural reason. But job growth has been remarkably even across sectors.
Structural unemployment stories make no sense.
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I think of wage growth in leisure & hospitality as a bit of a canary in the coal mine for the labor market: workers are short term, have little firm-specific hold-up power. Labor market tightness should matter a lot for wage growth.
This is consistent with falling tightness.
Significant slowdown in wage and salary growth for private workers in leisure/hospitality sector ... just +0.5% quarter/quarter in 1Q2024
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Tight labor markets are good!
Racial disparity in household incomes of Minnesotans is starting to narrow, reports
@kavitakumar
@StarTribune
.
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Construction spending down month over month.... not good.
The construction spending slowdown in 2022 was fine when nominal GDP was growing at 9%+ per year and the unemployment rate was 3.4%.
Not good now with a softening labor market, normalizing inflation, high real rates.
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Embedded in this number is some union catch-up: wage growth YoY for unionized workers was 6.5%. For non-union workers, it was 3.8%.
A cool ECI:
The employment cost index is seen inside the Fed as the highest-quality measure of compensation growth
Wages and salaries for private-sector workers ex-incentive paid occupations was +1.0% in Q2
The Y/Y rate fell to 4.1% (vs 4.2% in Q1 and 4.8% last year)
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With all this wage deceleration, if you're using a standard wage Phillips curve, you'd have to infer that u*<3.5%...
Lower-wage sectors continue to show a sharper deceleration than other sectors. Overall posted wage growth declined by 0.2 percentage points from November to December, but fell by 0.4 for lower-wage categories.
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This sudden consensus around reacceleration/'no landing' is overblown, or is at least premature.
1. The labor market is still very strong, but is not tightening further.
2. Durable good orders are flat (excluding aircraft).
3. Housing starts are down, now even for multi-family.
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A lot of attention on CPI today, but multiple series point to slower wage growth.
Hard to have sustained high inflation if wage growth is going back to normal.
📉 New data from the Indeed Wage Tracker 📉
Posted wage growth in the US has returned to its pre-pandemic pace.
March data shows annual wage growth of 3.1%, equal to 2019's average.
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Employment cost index came in fairly strong. An interesting note is that pay for unionized workers is now only catching up to the wage growth for non-union workers.
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A “soft landing”, where inflation comes down and unemployment stays low, has been in the cards since the hiring and quit rates started returning to normal last autumn.
Nice to see more people joining the party. :)
New blog post at
@rooseveltinst
:
In 2019, the unemployment rate was 3.5%, and inflation was low and stable.
Now at the end of 2022, there's little reason to think that a rate of 3.5% is intrinsically more inflationary than it was in 2019. A thread:
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The relationship between the unemployment rate and the JOLTS quits rate (using private sector here) has now completely returned to the 2001-2019 relationship.
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Looks to me like quits came down without an increase in the unemployment rate.
While some argued two months ago that job openings can fall without increases in unemployment, the evidence so far suggests the opposite. To the extent that job openings have started to fall, unemployment has ticked up. Based on the historical data, this pattern should continue.
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It also helps square why the labor numbers look so good while GDP was flat - all GDP declines from manufacturing & construction, while labor intensive sectors (health care, professional/scientific, accommodation & food service) keep growing.
@bencasselman
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A bit underappreciated at the moment: the demographically-weighted Atlanta Fed wage index has been ticking down for four months.
If you download their data, there are additional 3-month moving average series that more clearly show a downward turn:
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Heh.
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Folks, this is a great jobs report.
Wage growth is moderate, but stronger for non-supervisory workers.
Job gains & participation suggest workers are coming back.
Dip in hours, falling share of job leavers in unemployed means cooling but strong demand.
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@JosephPolitano
Sure, new tenant repeat rent is cool, but have you tried the Indeed wage tracker?
@nick_bunker
@PrestonMui
New from me at
@employamerica
: The Indeed Wage Tracker Shows Wage Deceleration. The Fed Should Pay Attention.
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The labor market is now less tight than in 2018-2019, and it doesn't appear to be stabilizing.
(figure thanks to
@IrvingSwisher
)
Consumers spot changes in their local economies before the data. The Conference Board’s Labor Differential dropped to 18.1 in July, a fresh cycle low. Consumers are seeing softer labor market conditions and historically this has coincided with a rising unemployment rate.
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Will this keep going? The Fed wants to slow the labor market, but it seems more likely that something else will break first.
At the moment, it looks like the rest of the world.
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The rise in the unemployment rate isn't that surprising given the quits rate.
The quits-Beveridge curve is stable, while the regular Beveridge curve with vacancies and unemployment has continued to shift.
Signs of a soft labor market have been showing themselves for a while.
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Paper is up! "Which Workers' Wages Track Productivity? The Role of Position Specificity and On-the-Job Search."
This was largely motivated by the graph, which shows barely any nominal wage growth in low-wage jobs from 2010-2014, and a huge catch up from 2014-2018.
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The soft landing recipe for the labor market:
1. Wage growth slowed w/o rising unemployment.
2. Labor force participation responds gradually to demand.
3. Interest-sensitive sectors were constrained, so the labor market is resilient to interest rate hikes.
Hopefully it holds!
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A better alternative is the quit rate, which does have a stable relationship with unemployment pre-COVID. The quit rate is now back to 2.7%, close to the being in its historical range.
Research also suggests that quits are the best predictor of wage growth.
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So I still hear arguments that u* has increased.
But it looks like we're getting close to the pre-covid relationship between wage growth and unemployment.
Clearly there was labor market disruption from covid, but the effects have now almost entirely faded.
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Age 25-54 labor force participation rate back to pre-08 recession high.
Remember how many people were quick to declare structural declines in participation, both after the GFC and Covid. You have to wait! Demand brings people back into the labor force gradually!
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If you want to use a V/U ratio for measuring labor market tightness, I think you need to contend with the secular rise in vacancies from 2000-2019.
Here's vacancy per quit. Run any regression of vacancies on quits, unemployment, or wage growth, you get a time trend pre-2019.
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In total, the labor market is definitely tighter than it was in 2019, but it's not *that* much tighter, and it is cooling.
We're already seeing the effects of falling tightness: wage growth in low-wage sectors has slowed dramatically.
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The more time passes, the more I like gross (nominal) labor income as the indicator for "is demand growing at a good pace?".
@IrvingSwisher
If you look at growth in aggregate gross labor income (the sum of all wages & salaries, a key cyclical indicator) then growth over the last year has essentially matched pre-COVID growth rates. The pace of labor market gains has retreated from 2021/2022 highs but is still ~normal~
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YESSS INDEED WAGE TRACKER FOR THE US
🚨 📉 New from the Indeed Hiring Lab:
Growth in wages advertised in
@Indeed
US job postings was elevated at 6.5% in November, but down substantially from 9% back in March.
/1
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Here's the updated implied 3 month growth rate for the Atlanta Fed wage tracker.
I do the same procedure on the
@indeed
posted wage growth series shared by
@nick_bunker
.
Both are coming in at 4.7%-4.8% annualized.
A thread on labor market data:
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Really nice episode with
@joelle_gamble
. One point I want to add to
@TheStalwart
's question about real wages:
Real wages have almost nothing to do with labor market tightness when the main shock moving prices is gasoline or used cars.
NEW ODD LOTS:
While inflation gets all the attention, there's still a lot of ambiguity about the state of the labor market.
@tracyalloway
and I spoke to
@USDOL
Chief Economist
@joelle_gamble
, who helped clear it all up, and explain the current trends
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Average hourly earnings grew at .3% month over month.
More evidence that wages can slow if quits falls. The unemployment rate is not what matters here.
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One of the wonders of tight labor markets. I love it.
New from
@CoryStahle
: a deep dive into the state of educational requirements in job postings.
💥 More than half of postings don't mention an educational requirement
💥 Share of postings requiring at least a bachelor's degree down to below 18%
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I can't help but think we estimated flat Phillips curves because... we were on the flat part of the Phillips curve.
A point
@GagnonMacro
has been making for a long time.
New paper on Fiscal Stimulus with Supply Constraints
Main idea: fiscal stimulus has a large impact on inflation when firms cannot increase output due to technological supply constraints.
Paper is preliminary, comments are welcome
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This is why we are fighting for a neutral, third-party process (grievance and arbitration) for cases of discrimination and harassment. Even after a year of bargaining, the Harvard administration insists that student workers address these issues only through their Title IX office.
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Cool figures from
@IrvingSwisher
here. Relates to a project
@jacobpweber
and I have just finished a draft on - private investment spending generates a lot less domestic labor income than it used to!
Today's jobs report saw a bounceback in the investment-side of the economy, mostly due to better weather lifting the construction sector.
Long-run view reveals persistent underinvestment & a 2.5M deficit in related jobs (conservatively). The American Jobs Plan would surely help
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@ModeledBehavior
My hunch is that demand elasticities fall (people are less price sensitive) when inflation goes up.
Easy to discern relative price changes increases if overall prices are stable. Much harder to tell when all prices are going up.
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No other university feels the need to specifically clarify in a collective bargaining agreement a right to academically retaliate against student workers.
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I've seen many "the fed has never achieved a soft landing" statements lately.
But way fewer workers are employed in interest-sensitive sectors than before. Plus the most responsive sector (housing) was constrained already, so it's unlikely construction firms will shed workers.
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I was really intrigued by
@Econ_Parker
's split between wage growth in service/good sectors.
I think there's a good case that the growth in wages in the goods sector reflect catch-up growth, rather than inflation expectations/entrenchment.
Pick your poison with today's jobs report, but the net takeaway should be that labor market softening continued through May.
The May employment situation report included much stronger than expected job and wage growth alongside continued deterioration in conditions from the
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As for that 500k+ jobs January number, there are two specific factors that probably made it high.
1. Warm weather (SF fed estimates 125k boost).
2. Illnesses (flu, RSV, COVID) all peaked and were receding.
Baseline is still job growth is ~200k.
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Lack of construction layoffs (as a reason for a soft landing/no layoffs in response to higher interest rates) isn't even the biggest news here.
Historically, job losses in durable goods manufacturing has been much larger that job losses in construction. No layoffs jump either.
Interesting data thread. His conclusion is that surprisingly strong construction labor markets are key.
Agreed;
@JustinBloesch
and I recently argued here their backlogged nature are one of 4 reasons the Fed can have a soft landing if they want.
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Wage growth and unemployment: I will post about non-linear Phillips curves until you all block me.
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One reason we formed the union was that we wanted to address the massive imbalance of power between faculty supervisors and students. Students’ entire careers can depend on the word of one person, and we often take jobs with faculty to build those relationships.
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Two more series that show that the labor market has become a lot less tight in the last two years.
1. Job leavers share of unemployed is back down: suggests that fewer people are quitting without a job lined up.
@DeanBaker13
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Which is absurd. The power that faculty have over student workers is almost entirely over academics. Student workers are not afraid of losing one short term job and taking another one. They are afraid of having their entire career destroyed by potential academic retaliation.
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It looks like a large chunk of the high wage reading this month is in professional and business services, but not in wages for nonsupervisory workers.
Not sure why manager bonuses would be high the last two months. Something to watch.
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@NickTimiraos
Why is the default 'without a large increase in labor supply'?
Labor force participation responds gradually to demand.
People got swept up in a narrative of stalled participation based on noisy data.
This month's job numbers are a bit fluky, but continued job gains of 200k+ are possible and not a sign of overheating.
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Great to talk to
@denitsa_tsekova
at
@YahooFinance
about our paper (with
@BirtheLarsenCph
and
@Bledi_Taska
) and why wages at the bottom are rising.
In short: low-wage workers depend on tight labor markets to get raises in the US.
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So nearly two years after Dominguez, the Harvard admin just doesn’t get it – student workers deserve real protections to address the imbalances of power inherent to both the workplace and academia. If the administration can’t figure this out by Dec 3, we will have to strike.
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@jasonfurman
As you say, we shouldn't read too much into one month.
This report is *really* looks consistent with gradual cooling to me.
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More on "soft landing is very possible in the labor market":
Hires have fallen with basically no increase in layoffs. We're back to pre-covid hiring rates with the layoff rate *below* pre-covid levels.
Short thread:
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Wage growth can and did slow, without any increase in the unemployment rate.
6 month AHE wage growth down to 4%.
Soft landing, immaculate disinflation, whatever you want to call it: the unemployment rate never needed to rise to bring inflation down.
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Emmanuel Farhi was kind and supportive and had so much left to do. It's shocking and so deeply sad to hear that he is gone. He will be deeply missed. Thank you for what you have taught us - there should have been much more.
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With a time trend in job openings, we are likely no longer on the ‘vertical’ part of the beveridge curve: fewer job openings means higher unemployment now. Steady should now be the goal.
Inflation was low pre-COVID with unemployment under 4%. No reason that’s not possible now.
The labor market is no longer moderating. It's moderated.
The October 2023 JOLTS report adds more fuel to the soft landing fire.
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Still record homes under construction, so slowdown in starts probably won't decrease employment for a while.
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Some thoughts about the "natural rate of unemployment" and why wage grow slowed down, even as unemployment fell to 3.4%.
Forget stars (u*) for a second, and let's make up a new unemployment rate, call it u#.
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So when you have a case of someone like Jorge Dominguez, who sexually harassed numerous women over decades forcing many to leave academia altogether, it is no surprise that many survivors are afraid to speak up.
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Well, well, if it isn't wage deceleration *finally* hitting the Atlanta Fed Wage Tracker...
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If this isn't consistent with a soft landing, I don't know what is.
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@TheStalwart
Unless you understood that labor income is less sensitive to interest rates than before, and that constrained sectors (like construction and autos) wouldn’t shed workers like usual 😉
I've seen many "the fed has never achieved a soft landing" statements lately.
But way fewer workers are employed in interest-sensitive sectors than before. Plus the most responsive sector (housing) was constrained already, so it's unlikely construction firms will shed workers.
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Market based core PCE inflation is at 2.4% year over year.
Meanwhile, the unemployment rate has risen from 3.4% to 4.1%.
What's the rationale for restrictive policy anymore?
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Of course, the vast majority of these arrangements are great and build lasting and meaningful professional relationships. However, in rare cases, this dependence on one person can greatly amplify the potential for abuse.
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Does anyone know a good citation for pro-cyclical investment in labor saving technologies? Related to the idea tight labor markets would generate faster productivity growth.
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The strongest argument that the "natural" unemployment rate (or u*, or NAIRU) would go up is structural unemployment: some sectors decline, and workers with sector-specific skills have a hard time finding jobs.
But the job recovery has been very even across sectors:
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