Mandel:

I started writing about tough times for young college grads in 2006, when I was at BusinessWeek. Seems like a different day and age, doesn’t it?  Since then things have only gotten much much worse.  By my latest calculations:

• Real earnings for young male college grads are down 19% since their peak in 2000.
• Real earnings for young female college grads are down 16% since their peak in 2003.

These figures are for full-time workers, ages 25-34, with a bachelor’s degree only. See the charts below.
I want to ask an economic question, a political question, and a policy question.  First, no one has given me a good explanation yet of why young American college grads should have been hit so hard. Is there increased competition with young college grads around the world?  Are new college grads lower quality than their predecessors? Has information technology reduced the need for young grads? I really would like to know.
Politically, Obama captured the imagination of this group in 2008. Are young college graduates going to sit out the next presidential election in disgust?  Is there any candidate that can excite them?
Finally, if  we were going to design some economic policies to help young college grads, what would they be?

Nutty PhD in Humanities?

Author Louis Menand On Reforming U.S. Universities : NPR:

an enormous number of new campuses opened up in the 1950s and 1960s. ...Then after 1970, the system started to slow down and even go backwards, and you ended up with an enormous number of PhDs for a declining number of slots.
...the number of PhDs awarded has been going up pretty steadily since the 1970s, and the number of job openings has more or less been going down.
...the time it takes to get the PhD has been increasing steadily since the 1970s so that the median time to get a PhD in a humanities discipline, like philosophy, English, art history, is nine years.
...Now, if you think that you can get a law degree and argue a case before the Supreme Court in three years, get a medical degree and cut somebody open in four years, why should it take nine years to teach poetry to college freshmen?
...only about half the people who enroll in graduate programs in English actually get the PhD - only five percent of those ended up teaching in research universities, which is really what we're training our students to do.

A century of labor leisure tradeoff

Licensure

Medical licensing only became important 100 years ago with the publishing of the Flexner Report.  Other occupations have been catching up since then.  Due to licensing requirements in Illinois, it took longer to "become a master plumber than for a newly graduated physician to become a Fellow of the American College of Surgeons." Alan Kreuger says licensing is growing in many sectors of the economy:

Morris M. Kleiner, ...questions whether occupational licensing has gone too far. He provides much evidence that the balance of occupational licensing has shifted away from protecting consumers and toward limiting the supply of workers in various professions. A result is that services provided by licensed workers are more expensive than necessary and that quality is not noticeably affected.... Professor Kleiner conservatively estimates that 20 percent of workers in 2000 were in an occupation that was covered by a state licensing requirement, up from 5 percent in the 1950's.
He said that licensing has mushroomed because the service sector, where licensing is more prevalent, has grown rapidly and because more occupations have started requiring licenses.
...A state-by-state list of the occupations covered by licensing requirements is available from www.acinet.org/acinet/licensedoccupations.... Perhaps as many as 3 of every 10 workers nationwide are required to obtain a license to do their job.... Kleiner and a colleague, Robert T. Kudrle, found that stricter state licensing requirements for dentists did not noticeably affect the dental health of 464 Air Force recruits. Other studies have found at best weak evidence that students in classes taught by licensed teachers performed better than those taught by unlicensed teachers.
Summarizing the literature, Professor Kleiner concludes, "there is little to show that occupational regulation has a major effect on the quality of service received by consumers."
At the same time, the hurdles imposed by occupational licensing reduce the supply of workers in many regulated professions, which drives up wages in those jobs and the price of services. Dentists, for example, were found to earn and charge 11 percent more in states with the most restrictive licensing requirements. While tough licensing standards may help higher-income consumers avoid low-quality providers, it also appears to prevent lower-income consumers from gaining access to some services.
Professor Kleiner said that a frequent pattern was for workers who have common interests and provide a homogeneous service to form an association. That association then seeks regulation to restrict the number of people who can work in the occupation. The state legislature and governor have little incentive to resist this pressure because the state gains revenue from license fees.
The most notable opposition to licensing comes from large buyers like hospitals, which object to the monopolization of their suppliers. In most cases, however, consumers are diffuse and have little individual incentive to oppose licensing.
Another factor driving the growth of occupational licensing is the decline of labor unions. Apparently, the labor market abhors a vacuum; it needs some institutions and rules to function. Occupational licensing has replaced unions as the main labor market institution. There are now more than twice as many workers covered by occupational licensing provisions as are covered by a labor union contract.
"There is a lot more flexibility with unions than occupational licensing," Professor Kleiner said. Unions, he pointed out, negotiate at the company level and can be decertified, whereas occupational license requirements are typically statewide and rarely repealed.

Women Earned The Majority of Doctorates In 2009

Chronicle

Impact of Recessions on Earnings

People who get laid off during a recession lose their skills because they cannot get another job quickly and skills depreciate.  Plus, employers discriminate against people who have been unemployed (or underemployed) for an extended time.  These factors and others like the depression that often haunts the unemployed have long-lasting effects.  Kevin Drum:

Here's a gloomy chart from a new Brookings paper. It shows the average wages of men under 50 who lose their jobs in a "mass layoff" event.

• The red line is for men who are laid off during good economic times. On average, these men have steeply rising earnings in the five years before the layoff and then experience a big earnings plunge. They eventually get back to their old earnings level, but that's it. Their earnings never again get above that.
• The blue line is for men who are laid off during recessions. They also have steeply rising earnings in the five years before the layoff and then experience a big earnings plunge. However, they never even come close to their old earnings level. They max out at about $36,000 compared to peak earnings before the layoff of $45,000.

The steeply rising earnings before the layoff are a little perplexing to me, and I wonder if this is related in any way to the probability of being laid off in the first place. The main takeaway, though, is that if you lose your job during a recession, you are probably screwed for the rest of your life. Even ten years later you'll earn about 20% less than you did before. This price has been paid needlessly by hundreds of thousands of workers because our political leaders have never had the courage to take action strong enough to get our economy moving again.

Gender, Height, Intelligence, and Status

 Unlike the psychologist below, I do not endorse the idea that men are more intelligent than women on average because it is really hard to define intelligence.  Men are more intelligent than women on some kinds of tasks and clearly less intelligent than women on other kinds of tasks.  Given that men largely created the IQ tests, it should not be too surprising if they selected tasks that felt they were good at to put on the IQ tests.  It is impossible for me to say which kinds of intellectual tasks are the most important parts of intelligence, so I do not claim that one gender is more intelligent than the other.  However, I have never seen a behavioral quality where men have less variance than women.  No doubt some exist, but all the (somewhat limited) studies I have seen have demonstrated that men are more variable.  That is important for explaining differences in extremes between men and women. For example, most mentally retarded people are men and most geniuses are too.   Psychology Today:

The orthodoxy in intelligence research for the second half of the 20th century had been that men and women had the same average intelligence, but men had greater variance in their distribution than women.  Most geniuses were men, and most imbeciles were men, they said, while most women were in the normal range.  This conclusion, however, was manufactured out of political expediency.  Not wanting to discover, or a priori denying, any sex differences in intelligence, psychometricians simply deleted from the standardized IQ tests any item on which the performance of men and women differed.
More recently, however, especially since the turn of the millennium, there have been an increasing number of studies that cast doubt on this politically correct conclusion.  Studies with large representative national samples from Spain, Denmark, and the United States, as well as meta-analyses of a large number of published studies throughout the world, all conclude that men on average are slightly but significantly more intelligent than women, by about 3-5 IQ points.  So this has now become the new (albeit tentative) consensus in intelligence research.
...Psychometricians have known since the end of the 19th century that height is positively correlated with intelligence:  Taller people on average are more intelligent than shorter people.  And men in every human population are taller than women.  So one possibility is that men are more intelligent than women, not because they are men, but because they are taller.
... In fact, once we control for height, women are slightly but significantly more intelligent than men.  Further controlling for health, physical attractiveness, age, race, education, and earnings does not alter this conclusion.  Height has exactly the same effect on intelligence for men and women:  Each inch in height increases the IQ by about .4 point.  The partial effect of height on intelligence is more than three times as strong as the partial effect of sex.
So it is not that men are more intelligent than women, but that taller people are more intelligent than shorter people, but net of height women are more intelligent than men.  Women who are 5’10” are on average more intelligent than men who are 5’10”, and women who are 5’5” are on average more intelligent than men who are 5’5”.  But, more importantly, people who are 5’10” are significantly more intelligent than people who are 5’5”, and most people who are 5’10” are men and most people who are 5’5” are women.

Kanazawa continues:

why are taller people more intelligent than shorter people? ...we don’t know for sure, but there are two possible explanations.  First, both height and intelligence may be indicators of underlying health.  According to this view, people who are genetically and developmentally healthier simultaneously grow taller and become more intelligent than those who are less healthy, producing the positive correlation between height and intelligence.

Kanazawa has evidence that health and intelligence are uncorrelated and he believes that intelligence and height are correlated because both are sexy!  His only evidence is the correlation between the three:  

...Taller people are on average physically more attractive than shorter people; physically more attractive people are on average more intelligent than physically less attractive people; taller people are on average more intelligent than shorter people... But the issue is far from resolved.  While there is no doubt that taller people are indeed more intelligent than shorter people, the question of why this is so is one of the remaining puzzles in evolutionary psychology.

 So, maybe the reason that tall people and beautiful people earn more than the rest of us is that they are smarter on average.  If so, then work hard on your schoolwork because smarts can be developed by exercising your brain.  An alternative hypothesis is that height, and beauty, are correlated with self-confidence and status and that leads to higher achievement on intelligence tests and higher earnings.  Again, confidence and status can be developed by working hard to achieve mastery.  Social support helps increase learning, confidence, and status.  Encourage your friends to work (and think) hard. 
Society awards status to tall, beautiful people and that increases confidence.  One study found that it is one's relative height in adolescence that increases later smarts and earnings rather than one's height at other ages.  It is hard to think of a biological reason why height in adolescence would increase later earnings and smarts, but it is easy to see why it would increase status and confidence during an extremely socially awkward time in most people's lives.  Similarly, several studies have found that it is relative height that gives a lifelong advantage to soccer players (in Europe) and hockey players (in Canada).  The kids who have birthdays near the youth league cutoff dates typically end up as the professional athletes.  That is because the older kids are relatively tall compared with other kids in their leagues growing up and that creates status and confidence and helps them get a lot of practice and love of the game.   

Cynical Thoughts On The Minimum Wage | ThinkProgress

Cynical Thoughts On The Minimum Wage | ThinkProgress:

Arindrajit Dube surveys the post-Card/Krueger minimum wage literature and concludes that their study basically holds up. My general view, with apologies to empirical econometricians doing policy-relevant work everywhere, is that one can generally Google up a study supporting whichever conclusion one prefers.

Consequently, I’ve always thought the most persuasive evidence on this was simply the big picture:

It’s clearly not the case that the high real minimum wage of the 1960s led to unusually elevated unemployment during that decade. And the fact is even more striking when you consider that the real wages of folks in the top quintile were way lower back then.

Zero Marginal Product Workers

Worthwhile Canadian Initiative: ZMP workers and output quotas:

Imagine, just imagine, that the government put a quota on the total output of, say, cars. Because some rabid environmentalists told them to. The result would be a drop in employment of auto workers. Some of those workers, who had skills useful in other sectors, would be able to find jobs elsewhere. Others, who had little or no alternative skills, would be unemployed.

Would we describe those unemployed car workers as being Zero Marginal Product workers? Not really. They are still exactly as capable of producing extra cars as they were before. It's just that their potential employers are no longer able to sell any extra cars.

Would we describe those unemployed workers as being Zero Value Marginal Product workers? Yes and no. Depends what you mean. The extra cars they could produce would have zero value to the firms trying to sell them, because they aren't allowed to sell any extra cars. But those extra cars would have exactly the same value as before to the people who wanted to drive them, but who now can't, because of the output quota on cars.

Would wage cuts help employment of car workers? Not really. An individual car worker who was willing to work for lower wages might get the job that would otherwise have gone to another worker, but that doesn't help aggregate employment of car workers. Maybe if they all cut wages their employers would use more labour-intensive methods of producing cars. That could help employment of car workers. But it would hurt employment of all the other factors used to produce cars. If all factors used in producing cars cut their "wages", that wouldn't help aggregate employment of all factors (not just workers) used in producing cars.

Now imagine, just imagine, that the government put a quota on the total output of everything, not just cars. Because the environmentalists told them that GDP is bad, and needs to be controlled. Now it's not just car workers who are unemployed. All sorts of workers are unemployed. And the unemployed workers who have skills useful in other sectors can't get jobs in those other sectors. Because there are no other sectors.

Are the unemployed workers Zero Marginal Product workers? No. Are they Zero Value Marginal Product workers? Yes and no. Depends what you mean. The extra output they could produce is still valued by the people who don't have it (who are mostly the unemployed workers themselves), but it's not valued by the firms producing it, because they aren't allowed to sell it. Would wage cuts help? Maybe a little, but not really. If wages of labour fell relative to the wages of land and machinery, firms would maybe use more labour-intensive methods of producing the same total output. But that would simply replace unemployed labour with unemployed land and machinery. If the wages of all factors fell, it wouldn't help total employment of all factors.

Let's push this analogy further. Suppose the rabid environmentalists have heard about tradeable quotas, and that they are a good idea. They issue a fixed number of "GDP permits" to households. Each household can spend its permits on whatever good it likes, at whichever firm it likes.

The Statistics Canada employees who normally measure each firm's contribution to GDP are asked to check that each firm actually receives from households the requisite number of GDP permits. And because of the standard value-added intermediate goods problem in measuring GDP, the Statistics Canada employees convince the environmentalists and government that it's much easier if each firm collects GDP permits equal to the value of its sales, and in turn pays its suppliers with those same GDP permits. So the GDP permits flow all the way down the supply chain to the owners of the ultimate factors of production, and then those households in turn use the GDP permits they earn to buy goods from firms. This makes enforcement a lot easier, since the firms will want to ensure they get the GDP permits when they sell goods, because they need those permits to pay their own suppliers, workers, and owners. It's a bit like the GST (VAT), only in reverse.

The Statistics Canada employees recognise that the tradeable GDP permits are themselves valuable, so measure the prices of goods to include the value of the GDP permits received in exchange. A tradeable permit is just like a tax, and Statistics Canada decides to measure GDP inclusive of indirect taxes like VAT and the GDP permits. So firms compete for those GDP permits, by trying to offer low prices for high-quality goods. And the lower the price, the fewer GDP permits the firm needs to collect when it sells the goods. Eventually the GDP permits become so valuable that the firms are willing to give away their goods for free, except for the GDP permits. And households too are willing to give away their labour for free, except for the GDP permits. "You can drive this car off the lot for 15,000 GDP permits!". "Staff wanted; pay is 15 GDP permits per hour".

Now, the environmentalists in my story may be a bit rabid, but they do understand the stock-flow distinction. They know that a fixed stock of GDP permits may permit many different levels of GDP, which is a flow. It all depends on how quickly GDP permits circulate from households to firms, and back to households again. They introduce the concept of the "velocity of circulation" of GDP permits. Since it's too hard to put a "use by" date on each GDP permit, they decide to adjust the stock of GDP permits in circulation to try to offset changes in velocity. If velocity rises, so GDP rises above the environmentalists' target they reduce the stock of GDP permits in circulation by buying them back. They create a special "Central GDP Permit Bank" just for this purpose. And if velocity falls, so GDP falls below the environmentalists' target, the central bank increases the stock of GDP permits in circulation.

And the environmentalists in my story may be a bit rabid, but they also understand the distinction between nominal and real GDP. Since all goods and labour are now free, except for the GDP permits you need to pay in exchange, all prices are now measured in terms of GDP permits. If the stock of GDP permits is too small, individual firms and households will cut prices in terms of GDP permits, trying to compete for GDP permits against other firms and households. So the value of each permit will rise. And if the stock of GDP permits is too large, individual firms and households will raise prices in terms of GDP permits, since they worry less about competition from other firms and households. So the value of each permit will fall. So the environmentalists use their central bank to adjust the stock of GDP permits in circulation to try to prevent their value rising or falling too quickly.

Then one day the system breaks down. Something causes the velocity of circulation of GDP permits to fall. The central bank fails to respond quickly enough to increase the stock of GDP permits. (Because environmentalist hawks are afraid this would cause the value of GDP permits to drop). So the value of those permits starts to rise, so people hoard even more GDP permits against an uncertain future, which reduces velocity still further.

So we end up with a lot of apparently Zero Value Marginal Product unemployed workers.

Everything changes when you don't just use barter to trade stuff, but have to use money/GDP permits instead.

(This started out as a response to Bryan Caplan. But then I got carried away.)

Also see Tyler Cowen's article in Foreign Policy where he argues that high unemployment is caused by a decrease in the productivity of American workers:

...Many conservatives in the United States have placed the blame for high unemployment on the shoulders of President Barack Obama, arguing that his administration's liberal agenda has complicated the recovery. But the statistics suggest otherwise. Again, corporate profits and consumer spending are fine. Indeed, it's the sector in which the government has most directly intervened -- health care -- that has maintained the most robust job growth over the past two years, adding 20,000 new jobs in November alone. And don't go blaming job losses on illegal immigrants taking jobs from documented workers: Latino immigrants have left the country in large numbers since the start of the financial crisis.

As time passes, it is harder to avoid the notion that a lot of those old jobs simply weren't adding much to the economy. Except for the height of the housing boom -- October 2007 through June 2008 -- real GDP is now higher than it has been in the entirety of U.S. history. The fact that the United States has pre-crisis levels of output with fewer workers raises doubts as to whether those additional workers were producing very much in the first place. If a business owner fires 10 people and a year later output is almost back to normal, it's pretty hard to make the argument that they were doing much in the first place.

The story runs as follows. Before the financial crash, there were lots of not-so-useful workers holding not-so-useful jobs. Employers didn't so much bother to figure out who they were. Demand was high and revenue was booming, so rooting out the less productive workers would have involved a lot of time and trouble -- plus it would have involved some morale costs with the more productive workers, who don't like being measured and spied on. So firms simply let the problem lie.

Then came the 2008 recession, and it was no longer possible to keep so many people on payroll. A lot of businesses were then forced to face the music: Bosses had to make tough calls about who could be let go and who was worth saving. (Note that unemployment is low for workers with a college degree, only 5 percent compared with 16 percent for less educated workers with no high school degree. This is consistent with the reality that less-productive individuals, who tend to have less education, have been laid off.)

In essence, we have seen the rise of a large class of "zero marginal product workers," to coin a term. Their productivity may not be literally zero, but it is lower than the cost of training, employing, and insuring them. That is why labor is hurting but capital is doing fine; dumping these employees is tough for the workers themselves -- and arguably bad for society at large -- but it simply doesn't damage profits much. It's a cold, hard reality, and one that we will have to deal with, one way or another.

...the U.S. economy is going through some major structural shifts. It's not a question of getting back to where we were, but rather that the economy must solve a new problem of re-employing a lot of people who were not, in reality, producing very much in the first place. That's a steeper challenge than we had realized early in the stages of this recession -- and so far policymakers have failed at meeting it.

Analysts still disagree on how rapidly the U.S. economy will recover. But they're missing the point. The era of low unemployment may be in our rearview mirror for a long time to come.

Why Texas Creates Jobs

Mulligan's problem is that he forgets that demand matters more than supply. In the case of immigration, there is approximately zero change in unemployment because the immigrants bring demand too. This is a common fallacy by the anti-immigration side of the immigration debate, but it is surprising that Mulligan makes it.

Casey B. Mulligan: More Evidence That Supply Matters - NYTimes.com: "The supply of various types of workers has increased during the recession, continuing an earlier trend. That such trends continue to be associated with trends for employment contradicts the Keynesian claim that supply suddenly stops mattering during recessions and “liquidity traps.” A number of bloggers have pointed out that employment in Texas has been rising and has almost reached prerecession levels. Paul Krugman’s explanation is that the supply of people available and willing to work has been increasing in Texas, continuing a previous trend.
One example of that supply is the inflow of immigrants from nearby Mexico; another is the migration of Americans seeking cheaper housing. Recession-era supply episodes like these are important to identify, because they can prove or reject Keynesians’ fundamental assertion (so far unproven) that supply does not matter during a recession or a “liquidity trap” such as we’ve experienced since the recession began.
...
Consider, hypothetically, an immigration trend that continued even after the recession. In my view, the market would create jobs for many, but not all, of the immigrants and would continue to do so after the recession.
In the Keynesian view, immigration might create jobs before the recession, but could not create them once the recession began because “what’s limiting employment now is lack of demand for the things workers produce,”Professor Krugman wrote. “Their incentives to seek work are, for now, irrelevant.”
In the Keynesian view, all that extra supply does during the recession is add to unemployment rather than adding to employment. In other words, supply trends normally affect employment, but Keynesians assert that they cease to affect employment during a recession or liquidity trap.
The chart below shows monthly employment (left scale) and unemployment (right scale) in Texas since 2007. Despite the fact that our nation is in a liquidity trap (near-zero interest rates on Treasury bills, the results of the extra supply in Texas since 2009 have been to increase employment much more than increase unemployment.

Data From The Federal Reserve Bank of St. Louis
Or consider that more recent cohorts have found themselves in careers that involve less manual labor, producing a increasing number of people reaching age 65 and still willing and able to continue their work. In my view, elderly employment would rise and might even be rising enough to more than offset a demand reduction during a recession.
In the Keynesian view, all that extra supply does during the recession is add to unemployment rather than adding to employment.
When it comes to analyzing specific events during the recession, fiscal stimulus advocates often take the common sense approach that labor supply affects employment. But when it comes to making promises about the anticipated results of a large fiscal stimulus, they insist, without proof, that supply doesn’t matter.

For another view: Jobs and Population Growth | ThinkProgress: 

Texas’ robust job growth is a consequence of its robust population growth so if you want to replicate Texas results on a national basis then you need some story about increasing America’s population growth rate. An alternate story, being pressed on me via email over the weekend, is that people are moving to Texas because that’s where the jobs are. I have two reasons for doubting this, one empirical and one theoretical.

Empirically speaking, it’s just not the case that Texas has an unusually low unemployment rate. If people were trying to move toward labor market opportunities they’d be leaving Texas and moving to the Great Plains. The basic point is illustrated by the fact that Texas has consistently maintained a faster population growth rate than Iowa even though Iowa has always had a lower unemployment rate. In some sense the labor market “wants” people to move to Iowa. But in practice, people want to move to Texas. And in the aggregate, jobs are moving to Texas where the people are:

Theoretically, America has an overwhelmingly service driven economy. People sell things to each other. In China, entrepreneurs to build factories in places with “factory friendly” locations and then people move there. But this is not how the American economy works. It’s more like the reverse. If you run Darden Restaurants and you decide you have reason to believe that population growth is going to surge in West Virginia then you say to yourself “with more people living in West Virginia, there will be more business opportunities for the Red Lobster in West Virginia.” Then you go about building restaurants, creating construction jobs and cook jobs and waiter jobs. Along with restaurants, the people moving to West Virginia will need accountants and lawyers and doctors and big box stores. They’ll need houses to live in. The new, larger population will pay more in taxes and will require more police officers and teachers and DMV clerks. Population growth, in other words, will lead to job growth.

The opposite isn’t going to work. If the Governor of West Virginia rings up Darden HQ in Orlando and says “hey, we have a really business friendly environment you should open up some more restaurants” the answer is going to be “well, no, you have a poor state with a declining population.”

Now I don’t want to deny that it’s impossible for job creation to lead to population growth. If the Defense Department relocates its headquarters to West Virginia, people will move to West Virginia. If they discover diamond mines in West Virginia, people will move to West Virginia. But in the contemporary United States most people earn a living providing services to other people, so population movements should create jobs more than job-creation leading to population movement. This is why, I think, we see strong population growth in Texas amidst meh unemployment performance even as people remain reluctant to move to low unemployment plains states.

So, why are people moving to Texas??  It has a lot going for it.
1. Climate.  All warm weather states have seen greater population growth than cool-weather states since air conditioners became affordable. 
2. Few zoning regulations make for cheap housing.  Texas housing is a big reason why people move there.  It also helps that construction is cheaper in mild climates because of shallow pipes, foundations, less insulation, no furnace (use heat pump technology instead - it is just an air conditioner in reverse), etc.
3. Longest Mexican border.  Texas has had a much bigger influx of Latin American immigration than most of the country. 
4. Largest Hispanic population at 38% of population after New Mexico.  Hispanics have higher fertility rates than average in America, particularly recent immigrants which are a large percentage of Texans.  

Texas has one of the highest population growth rates of any state because of the above qualities.  Should you move there to get a job too? 
1. Per-capita income in Texas is right in the middle.  About half of states have higher incomes.  Real living standards are boosted by the mild climate and cheap housing, so this may understate the case for Texas. 
2. Unemployment in Texas is right in the middle.  About half of states have lower unemployment rates as of the most recent data (June 2011). 

Statistical Discrimination and Unemployed Workers

Help-Wanted Ads Exclude the Long-Term Jobless - NYTimes.com:

The unemployed need not apply. That is the message being broadcast by many of the nation’s employers, making it even more difficult for 14 million jobless Americans to get back to work.

A recent review of job vacancy postings on popular sites like Monster.com, CareerBuilder and Craigslist revealed hundreds that said employers would consider (or at least “strongly prefer”) only people currently employed or just recently laid off. there are legitimate reasons that many long-term unemployed workers may not be desirable job candidates. In some cases they may have been let go early in the recession, not just because business had slowed, but because they were incompetent....
Idle workers’ skills may atrophy, particularly in dynamic industries like technology. They may lose touch with their network of contacts, which is important for people in sales. Beaten down by months of rejection and idleness, they may not interview well or easily return to a 9-to-5 schedule.

“We may be seeing what’s called statistical discrimination,” said Robert Shimer, a labor economist at the University of Chicago. “On average, these workers might be less attractive, and employers don’t bother to look more closely to pick out the good ones.”Employers receive so many applications for each opening that some may use current employment status as an easy filter. ...
...Many firms that are not intentionally screening out the unemployed may still disqualify such applicants for having bad credit histories after having fallen behind on the bills — which they of course need a job to pay.
...The best solution, economists say, would be to encourage job growth more broadly, which may initially involve poaching people from other companies but could eventually draw even the least desirable workers back into jobs. During the boom years of the late ’90s, the labor market was so tight that ex-convicts had relatively little trouble finding work.

Why Are College Degrees Valuable?

The "tea party" governor of Florida recently declared that he wants to eliminate the liberal arts majors at state universities and community colleges because he does not think that they produce job skills.  However, liberal arts majors (humanities, social sciences, science, and math) do better on tests of learning than job-oriented majors like business, education, and engineering:

Liberal arts majors earn less immediately after college, but their incomes grow more quickly than job-oriented majors and ten years after graduation, they earn almost the same amount as job-oriented majors.  That is because the most important part of education is learning how to learn and exercising thinking and communication skills.  This is why economics majors do so well at getting into law schools and have such high earnings: it is a challenging major.  But how much you get out of your education depends upon how much work you put into it.  An economics major who wants to scrape by won't do as well later as one who is challenged by wanting to master difficult material.   

Leonhardt, NYTimes.com:

A century ago, the United States decided to make high school nearly universal. Around the same time, much of Europe decided that universal high school was a waste. Not everybody, European intellectuals argued, should go to high school.
It’s clear who made the right decision. The educated American masses helped create the American century, as the economists Claudia Goldin and Lawrence Katz have written. The new ranks of high school graduates made factories more efficient and new industries possible.
Today, we are having an updated version of the same debate. Television, newspapers and blogs are filled with the case against college for the masses... The evidence is overwhelming that college is a better investment for most graduates than in the past. A new study even shows that a bachelor’s degree pays off for jobs that don’t require one: secretaries, plumbers and cashiers. And, beyond money, education seems to make people happier and healthier.
...the returns from a degree have soared. Three decades ago, full-time workers with a bachelor’s degree made 40 percent more than those with only a high-school diploma. Last year, the gap reached 83 percent. College graduates, though hardly immune from the downturn, are also far less likely to be unemployed than non-graduates. Skeptics like to point out that the income gap isn’t rising as fast as it once was, especially for college graduates who don’t get an advanced degree.
The Hamilton Project, a research group in Washington, has just finished a comparison of college with other investments. It found that college tuition in recent decades has delivered an inflation-adjusted annual return of more than 15 percent. For stocks, the historical return is 7 percent. For real estate, it’s less than 1 percent.
Another study being released this weekend — by Anthony Carnevale and Stephen J. Rose of Georgetown — breaks down the college premium by occupations and shows that college has big benefits even in many fields where a degree is not crucial.
Construction workers, police officers, plumbers, retail salespeople and secretaries, among others, make significantly more with a degree than without one. Why? Education helps people do higher-skilled work, get jobs with better-paying companies or open their own businesses.
...
None of this means colleges are perfect. Many have abysmal graduation rates. Yet the answer is to improve colleges, not abandon them. ...
think about it this way: People tend to be clear-eyed about this debate in their own lives. For instance, when researchers asked low-income teenagers how much more college graduates made than non-graduates, the teenagers made excellent estimates. And in a national survey, 94 percent of parents said they expected their child to go to college.
Then there are the skeptics themselves, the professors, journalists and others who say college is overrated. They, of course, have degrees and often spend tens of thousands of dollars sending their children to expensive colleges.
I don’t doubt that the skeptics are well meaning. But, in the end, their case against college is an elitist one — for me and not for thee. And that’s rarely good advice.

Similarly, the book Poor Economics says that subsistence farmers in developing countries end up earning higher incomes with more education even though their jobs don't really "require" education in any obvious way.

Why Crime Keeps Falling

WSJ.com:

When the FBI announced last week that violent crime in the U.S. had reached a 40-year low in 2010, many criminologists were perplexed. It had been a dismal year economically, and the standard view in the field, echoed for decades by the media, is that unemployment and poverty are strongly linked to crime. The argument is straightforward: When less legal work is available, more illegal 'work' takes place.

The economist Gary Becker of the University of Chicago, a Nobel laureate, gave the standard view its classic formulation in the 1960s. He argued that crime is a rational act, committed when the criminal's 'expected utility' exceeds that of using his time and other resources in pursuit of alternative activities, such as leisure or legitimate work. Observation may appear to bear this theory out. After all, neighborhoods with elevated crime rates tend to be those where poverty and unemployment are high as well.

But there have long been difficulties with the notion that unemployment causes crime. For one thing, the 1960s, a period of rising crime, had essentially the same unemployment rate as the late 1990s and early 2000s, a period when crime fell. And during the Great Depression, when unemployment hit 25%, the crime rate in many cities went down. Among the explanations offered for this puzzle is that unemployment and poverty were so common during the Great Depression that families became closer, devoted themselves to mutual support, and kept young people, who might be more inclined to criminal behavior, under constant adult supervision. These days, because many families are weaker and children are more independent, we would not see the same effect, so certain criminologists continue to suggest that a 1% increase in the unemployment rate should produce as much as a 2% increase in property-crime rates.

Yet when the recent recession struck, that didn't happen. As the national unemployment rate doubled from around 5% to nearly 10%, the property-crime rate, far from spiking, fell significantly. For 2009, the Federal Bureau of Investigation reported an 8% drop in the nationwide robbery rate and a 17% reduction in the auto-theft rate from the previous year. Big-city reports show the same thing. Between 2008 and 2010, New York City experienced a 4% decline in the robbery rate and a 10% fall in the burglary rate. Boston, Chicago and Los Angeles witnessed similar declines.

Some scholars argue that the unemployment rate is too crude a measure of economic frustration to prove the connection between unemployment and crime, since it estimates only the percentage of the labor force that is looking for work and hasn't found it. But other economic indicators tell much the same story. The labor-force participation rate lets us determine the percentage of the labor force that is neither working nor looking for work—individuals who are, in effect, detached from the labor force. These people should be especially vulnerable to criminal inclinations, if the bad-economy-leads-to-crime theory holds. In 2008, though, even as crime was falling, only about half of men aged 16 to 24 (who are disproportionately likely to commit crimes) were in the labor force, down from over two-thirds in 1988, and a comparable decline took place among African-American men (who are also disproportionately likely to commit crimes).

The University of Michigan's Consumer Sentiment Index offers another way to assess the link between the economy and crime. This measure rests on thousands of interviews asking people how their financial situations have changed over the last year, how they think the economy will do during the next year, and about their plans for buying durable goods. The index measures the way people feel, rather than the objective conditions they face. It has proved to be a very good predictor of stock-market behavior and, for a while, of the crime rate, which tended to climb when people lost confidence. When the index collapsed in 2009 and 2010, the stock market predictably went down with it—but this time, the crime rate went down, too.

So we have little reason to ascribe the recent crime decline to jobs, the labor market or consumer sentiment. The question remains: Why is the crime rate falling?

One obvious answer is that many more people are in prison than in the past. Experts differ on the size of the effect, but I think that William Spelman and Steven Levitt have it about right in believing that greater incarceration can explain about one-quarter or more of the crime decline. Yes, many thoughtful observers think that we put too many offenders in prison for too long. For some criminals, such as low-level drug dealers and former inmates returned to prison for parole violations, that may be so. But it's true nevertheless that when prisoners are kept off the street, they can attack only one another, not you or your family.

Imprisonment's crime-reduction effect helps to explain why the burglary, car-theft and robbery rates are lower in the U.S. than in England. The difference results not from the willingness to send convicted offenders to prison, which is about the same in both countries, but in how long America keeps them behind bars. For the same offense, you will spend more time in prison here than in England. Still, prison can't be the sole reason for the recent crime drop in this country: Canada has seen roughly the same decline in crime, but its imprisonment rate has been relatively flat for at least two decades.

Another possible reason for reduced crime is that potential victims may have become better at protecting themselves by equipping their homes with burglar alarms, putting extra locks on their cars and moving into safer buildings or even safer neighborhoods. We have only the faintest idea, however, about how common these trends are or what effects on crime they may have.

Policing has become more disciplined over the last two decades; these days, it tends to be driven by the desire to reduce crime, rather than simply to maximize arrests, and that shift has reduced crime rates. One of the most important innovations is what has been called hot-spot policing. The great majority of crimes tend to occur in the same places. Put active police resources in those areas instead of telling officers to drive around waiting for 911 calls, and you can bring down crime. The hot-spot idea helped to increase the effectiveness of the New York Police Department's Compstat program, which uses computerized maps to pinpoint where crime is taking place and enables police chiefs to hold precinct captains responsible for targeting those areas.

Researchers continue to test and refine hot-spot policing. After analyzing data from over 7,000 police arrivals at various locations in Minneapolis, the criminologists Lawrence Sherman and David Weisburd showed that for every minute an officer spent at a spot, the length of time without a crime there after the officer departed went up—until the officer had been gone for more than 15 minutes. After that, the crime rate went up. The police can make the best use of their time by staying at a hot spot for a while, moving on, and returning after 15 minutes.

Some cities now use a computer-based system for mapping traffic accidents and crime rates. They have noticed that the two measures tend to coincide: Where there are more accidents, there is more crime. In Shawnee, Kan., the police spent a lot more time in the 4% of the city where one-third of the crime occurred: Burglaries fell there by 60% (even though in the city as a whole they fell by only 8%), and traffic accidents went down by 17%.

There may also be a medical reason for the decline in crime. For decades, doctors have known that children with lots of lead in their blood are much more likely to be aggressive, violent and delinquent. In 1974, the Environmental Protection Agency required oil companies to stop putting lead in gasoline. At the same time, lead in paint was banned for any new home (though old buildings still have lead paint, which children can absorb).

Tests have shown that the amount of lead in Americans' blood fell by four-fifths between 1975 and 1991. A 2007 study by the economist Jessica Wolpaw Reyes contended that the reduction in gasoline lead produced more than half of the decline in violent crime during the 1990s in the U.S. and might bring about greater declines in the future. Another economist, Rick Nevin, has made the same argument for other nations.

Another shift that has probably helped to bring down crime is the decrease in heavy cocaine use in many states. Measuring cocaine use is no easy matter; one has to infer it from interviews or from hospital-admission rates. Between 1992 and 2009, the number of admissions for cocaine or crack use fell by nearly two-thirds. In 1999, 9.8% of 12th-grade students said that they had tried cocaine; by 2010, that figure had fallen to 5.5%.

What we really need to know, though, is not how many people tried coke but how many are heavy users. Casual users who regard coke as a party drug are probably less likely to commit serious crimes than heavy users who may resort to theft and violence to feed their craving. But a study by Jonathan Caulkins at Carnegie Mellon University found that the total demand for cocaine dropped between 1988 and 2010, with a sharp decline among both light and heavy users.

Blacks still constitute the core of America's crime problem. But the African-American crime rate, too, has been falling, probably because of the same non-economic factors behind falling crime in general: imprisonment, policing, environmental changes and less cocaine abuse.

Knowing the exact crime rate of any ethnic or racial group isn't easy, since most crimes don't result in arrest or conviction, and those that do may be an unrepresentative fraction of all crimes. Nevertheless, we do know the racial characteristics of those who have been arrested for crimes, and they show that the number of blacks arrested has been falling. Barry Latzer of the John Jay College of Criminal Justice has demonstrated that between 1980 and 2005, arrests of blacks for homicide and other violent crimes fell by about half nationwide.

It's also suggestive that in the five New York City precincts where the population is at least 80% black, the murder rate fell by 78% between 1990 and 2000. In the black neighborhoods of Chicago, burglary fell by 52%, robbery by 62%, and homicide by 33% between 1991 and 2003. A skeptic might retort that all these seeming gains were merely the result of police officers' giving up and no longer recording crimes in black neighborhoods. But opinion surveys in Chicago show that, among blacks, fear of crime was cut in half during the same period.

One can cite further evidence of a turnaround in black crime. Researchers at the federal Office of Juvenile Justice and Delinquency Prevention found that in 1980, arrests of young blacks outnumbered arrests of whites more than six to one. By 2002, the gap had been closed to just under four to one.

Drug use among blacks has changed even more dramatically than it has among the population as a whole. As Mr. Latzer points out—and his argument is confirmed by a study by Bruce D. Johnson, Andrew Golub and Eloise Dunlap—among 13,000 people arrested in Manhattan between 1987 and 1997, a disproportionate number of whom were black, those born between 1948 and 1969 were heavily involved with crack cocaine, but those born after 1969 used very little crack and instead smoked marijuana.

The reason was simple: The younger African-Americans had known many people who used crack and other hard drugs and wound up in prisons, hospitals and morgues. The risks of using marijuana were far less serious. This shift in drug use, if the New York City experience is borne out in other locations, can help to explain the fall in black inner-city crime rates after the early 1990s.

John Donohue and Steven Levitt have advanced an additional explanation for the reduction in black crime: the legalization of abortion, which resulted in black children's never being born into circumstances that would have made them likelier to become criminals. I have ignored that explanation because it remains a strongly contested finding, challenged by two economists at the Federal Reserve Bank of Boston and by various academics.

At the deepest level, many of these shifts, taken together, suggest that crime in the United States is falling—even through the greatest economic downturn since the Great Depression—because of a big improvement in the culture. The cultural argument may strike some as vague, but writers have relied on it in the past to explain both the Great Depression's fall in crime and the explosion of crime during the sixties. In the first period, on this view, people took self-control seriously; in the second, self-expression—at society's cost—became more prevalent. It is a plausible case.

Culture creates a problem for social scientists like me, however. We do not know how to study it in a way that produces hard numbers and testable theories. Culture is the realm of novelists and biographers, not of data-driven social scientists. But we can take some comfort, perhaps, in reflecting that identifying the likely causes of the crime decline is even more important than precisely measuring it.

—Mr. Wilson is a senior fellow at the Clough Center at Boston College and taught previously at Harvard, UCLA and Pepperdine. His many books include "The Moral Sense," "Bureaucracy," and "Thinking About Crime." This essay is adapted from the forthcoming issue of City Journal, published by the Manhattan Institute.