JOLTS data

The JOLTS data from which an earlier post was based has been an invaluable source of data and information. There are several areas in which I think it can be improved.

It's sampling frame of 16,000 businesses per month should be enlarged. I say this because the data only allow analysis at region levels rather than state levels. I suspect that the data is not released at the state level because the sampling error would be too large for it to be useful. State level data would also be of interest to state representatives and government agencies.

Which brings me to the sampling error. It needs to be published. I wasn't able to find what the error would be - I'm expecting maybe 5% error? What is worrisome is that with the small sample some firm types might not be fully represented and that the data is biased.

Comparing recessions: Job losses

The above chart shows job losses (in thousands from the past two recessions). The data are not seasonally adjusted and this shows in some of the occupations. In terms of total numbers, nothing really distinguishes the two recessions. There is a spike in the job losses in the financial sector for the current recession while for the 2001 recession, the spikes were prior and after the recession. The sector with the most job losses were not in the construction industry but rather in the the trade, transportation and utilities sector. There is also an obvious peak in the number of job losses in the construction industry this recession.

The two charts below separate out the two recessions so that the details are clearer.

The rates of job losses however tell a slightly different story:

Here, it is clear that the construction industry has the highest rate of job losses compared to all the other sectors followed by manufacturing and trade. In particular, the peaks of the job loss rates of these sectors are higher than in the previous recession.

The two recessions are again broken down into separate charts below:

If I understand this correctly (and it is likely that I don't) the story that is told by the job loss rates is that even though the job losses appear to be similar in some sectors, the size in these sectors is smaller in the current recession perhaps as a result of the 2001 recession. The shrinking of the labor force in some of these industries are thus reflected in the high job loss rates.

Data source: JOLTS

Irrationality examples

1. I leave the house without my wallet. Suddenly I feel that the probability of being stopped for driving without a license has suddenly increased.

2. I buy an external disk drive and set up a back-up schedule. If I miss the back-up I feel that the probability of a hard disk failure has gone up.

How much can academic economists make?

Much, much more (by about 3x) than I ever imagined. Courtest of WaPo are the financial disclosures of the members of the CEA (before the mid-term elections):

Christina Romer: $232K
Cecilia Rouse: $301K
Austan Goolsbee: $465K

Note: Figures are rounded, and only include salaries.

How different is this recession?

The above chart (from FRED) has received a fair amount of attention and indicates how different this recession has been compared to previous recessions. In future posts, I hope to be able to show more on the differences (or similarities) between this and the previous recession.

Market failure books

Long overdue are my thoughts on How Markets Fail by John Cassidy and The Myth of the Rational Market by Justin Fox. My initial thoughts were that the former was much more readable and flowed better than the latter although it may be because of the different focus. Cassidy's book approach market failure in the "traditional" economics sense - summarizing the evolution of economic theory through the Arrow-Debreu framework and its implications. This narrative is one that I am familiar with and he does talk about efficient markets but the essence of the book is that market failures warrant government intervention. The critique is that almost the entire economics profession bought into the argument that competition leads to the most efficient outcomes without much regard for the fact that competitive markets can behave perversely as well. Unfortunately, the profession was so invested into this dogma that it ignored regulation altogether.

We have all heard this argument before and I am sympathetic but unconvinced. Once we talk of market failure it is not hard to see market failures everywhere but is each and every one worthy of intervention? The academic research on the size of market failures and the social cost of inefficiences is severely lacking if the basis for government intervention is some kind of cost benefit analysis.

Fox's book approaches market failures from the financial side and here economics like Fama, Shiller and Thaler feature prominently. The book points out one of the ironies of the Efficient Market Hypothesis - if a market becomes efficient either through price discovery or some other information aggregation feature, doesn't this mean it has to be inefficient in the first place? This question had always been in the back of my mind when sitting in finance courses at the Simon school but was definitely one of those questions that I thought was too stupid to ask. (Incidentally, I wonder what they're teaching these days over there - certainly EMH but perhaps not with the gusto and faith that they did when I was there.)

Again, I am sympathetic to the argument that markets are not rational some of the time but when is intervention justified? Both books are great complements because of the coverage. Although there is some overlap in discussion there was not as great an overlap as I would have expected. However, I though Cassidy's book was more readable than Fox's.

What recession?

We were at the Hyatt Chesapeake again in December. This time we were there between Christmas and New Year instead of our customary pre-Christmas stay. As always the food was good and they have changed the menu at Water's Edge to include more pasta. The prices are still in the $20-25 range and the portions are smaller but at least I didn't feel overstuffed this time.

The crowd was much more than I expected. It was crowded enough in the indoor pool that we didn't feel like going in and jostling for space. We won't be coming here again next year (at least not at this time anyway).